CAD Slips Through 1.41 – Scotiabank
The Canadian Dollar (CAD) continues its downward trend this morning, underperforming with a 0.2% loss against the US Dollar (USD), according to Scotiabank’s Chief FX Strategists Shaun Osborne and Eric Theoret.
Federal Budget Overview
The recent Federal budget reveals significant spending on housing, defence, infrastructure, and measures to improve productivity and competitiveness. These efforts aim to stimulate investment and promote growth. However, the fiscal deficit is notably large, with a forecasted deficit of CAD 78 billion for the current fiscal year—substantially higher than the CAD 42 billion projected by the previous government last December.
Political Context and Market Reaction
The minority government will require support to pass budget legislation, but another election seems unlikely at this stage. Despite this, the CAD shows little strength, with spot gains deviating considerably above the estimated fair value of 1.3917.
"Spot dollar gains through the 1.4080 resistance point (now initial support) have been flagged as a risk for a while now and the USD’s progress through to the 1.41 handle this morning points to further appreciation to the 1.4160 area (50% retracement of the Feb/Jun decline in the USD at 1.4167)."
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Author's Summary
The Canadian Dollar weakens amid a significant federal deficit and cautious political outlook, signaling further USD gains toward 1.4160 in the near term.