Canadian dollar could get a jolt from Tuesday's government budget

Author: Adam Button | Category: News

Prime Minister Trudeau to deliver stimulus budget

The main event on the calendar for Canadian dollar traders this week is the Federal budget due on Tuesday.

The government has tossed aside fiscal restraint in order to buffer the economy from the commodity collapse. Trudeau and finance minister Morneau have slowly shifted deficit expectations toward $30 billion from the $10 billion promised during the Fall election.

Debt isn't a concern in the Canadian dollar or Canadian bond market. If deficit projections exceed $30 billion, CAD will likely rally as it implies more near-term stimulus and growth.

How much growth

At the moment, the Bank of Canada forecasts 1.4% growth this year but Poloz said that forecast is contingent on the budget. One thing we'll be looking for in the days after the budget are fresh forecasts from economists as they attempt to crunch the numbers.

What might trip up CAD is that heavy stimulus is already priced in. There is a risk the announcements don't live up to a budget that's been hyped up for 4 months.

Taxes

The government already cut the Federal tax rate to 20.5% from 22.0% for earnings in the $45,282 to $90,563 bracket. Morneau has promised 'tax fairness' measure in the budget that could curb boutique credits, simplify the tax code or crack down on loopholes.

Oil

Canadian oil is in a tough spot and Trudeau hasn't overly campaigned on taxing the industry or heavy regulation. There could be some talk of a carbon tax and something along those lines might be the biggest risk to CAD.

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