CAD Weakens Below 1.41 Against USD, Scotiabank Reports
The Canadian Dollar (CAD) continues its downward trend this morning, underperforming relative to other currencies with a 0.2% loss against the US Dollar (USD), according to Scotiabank’s Chief FX Strategists Shaun Osborne and Eric Theoret.
Federal Budget Highlights
The recent Federal budget outlines substantial spending in housing, defence, infrastructure, and productivity enhancements aimed at stimulating investment and growth. However, the anticipated fiscal deficit is notably large, projected to reach CAD 78 billion this fiscal year—significantly higher than the CAD 42 billion forecasted under the previous government in December.
"The minority government will need support for the budget legislation to pass but another election seems very unlikely at this point," the strategists note.
Market Impact on CAD
The Canadian dollar shows little reaction to the budget, with current spot gains exceeding one standard deviation above their fair value estimate of 1.3917. The USD’s move through the 1.4080 resistance level, now acting as support, signals potential further strength toward 1.4160. This level represents a 50% retracement of the USD’s decline between February and June.
"Spot dollar gains through the 1.4080 resistance point (now initial support) have been flagged as a risk for a while now," they add.
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Author’s summary: Despite fiscal stimulus efforts, a rising budget deficit and weak market response keep the Canadian dollar below key resistance, suggesting further USD strength ahead.