CAD Slips Through 1.41 – Scotiabank
The Canadian Dollar (CAD) continues to weaken, falling another 0.2% against the US Dollar (USD) and standing out as a relative underperformer today, according to Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret.
Federal Budget Impact
The Federal budget emphasizes substantial spending on housing, defence, infrastructure, and productivity to boost investment and economic growth. However, the deficit is expected to widen significantly to CAD 78 billion, far exceeding the previous government's estimate of CAD 42 billion.
"As expected, the Federal budget laid out significant spending on housing, defence, infrastructure and productivity and competitiveness, all aimed at boosting investment and lifting growth. The red ink spillage is significant, though with the current FY deficit forecast to rise to CAD78bn (well above the CAD42bn projected under the previous government back in December)."
Political and Market Outlook
The minority government will require support to pass this budget, though another election appears unlikely at this time. The CAD remains unimpressed by these developments, with spot gains deviating notably from the fair value estimate of 1.3917.
"The minority government will need help for the budget legislation to pass but another election seems very unlikely at this point. The CAD looks unimpressed and spot gains are deviating more significantly (well above one standard deviation) from our fair value estimate (1.3917) again."
Technical Resistance and Potential USD Gains
Resistance at 1.4080 has shifted to initial support, and the USD's rise past the 1.41 level suggests potential further gains toward 1.4160, near the 50% retracement point of the February to June USD decline.
"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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Summary: The Canadian Dollar is weakening due to a growing federal deficit and political uncertainty, while technical signals point to further USD gains beyond the 1.41 level.