USD/CAD Loonie Lower After Canadian Federal Budget No Longer Promising Return to Surplus

The loonie had a volatile day after the Brussel terrorist attacks shocked the world. The release of the Canadian Federal Budget, the first by the Liberal government, delivered on its promise to spend more in infrastructure to boost growth. The Bank of Canada (BoC) had left rates unchanged at 0.50 percent in the past two monetary policy meetings and shifted some of the focus to the Federal government to fulfill its promise of fiscal stimulus. After central bank actions have failed to drive the forex market, the Organization for Economic Co-operation and Development and the International Monetary Fund (IMF) have stressed the need for governments to turn to fiscal policies instead. Canada is the first nation since the two organizations issued their warnings and the results will be widely followed.

The Canadian Finance Department estimates that the stimulus spending will drive 0.5 percent of GDP growth. The BoC will wait until the spending announced today starts improving the economy before reaching into its monetary policy toolkit if needed. Central bank action in Canada is not expected until the fall. The Canadian government is putting the bulk of its effort on the middle class, with a stimulus package set to benefit them most of all and expecting a positive spill over to the rest of the economy.

The USD/CAD had a 0.82 percent price swing today after the Brussels attacks drove traders to seek safe havens. The CAD lost ground only to regain it slowly during the day as more details emerged and the market awaited the release of the Federal Budget. The USD/CAD is trading at 1.3043 after the 4:00 pm EDT budget publication. The timing means that not all the impact of the release will be reflected in the currency pair. The high of the day came after the terrorists attacks when the pair jumped to 1.3139.

Inflation and retail sales numbers were published last week. Core CPI in February improved to 0.5%, matching the forecast. CPI remained steady at 0.2%, short of the estimate of 0.3%. Retail Sales were much stronger, as Core Retail Sales jumped 1.2%, compared to the forecast of 0.6%. Retail Sales rebounded with an excellent gain of 2.1%, crushing the forecast of 0.7%. This week CAD traders will have little guidance from economic releases as the major event was the release of the Federal Budget. In the aftermath of the actions of the European Central Bank (ECB) and the U.S. Federal Reserve earlier this month and the marker’s growing distrust of monetary policy the CAD has been more correlated with the up and downs of the price of oil as the April output summit details and participants keep changing.

OPEC Russia Freeze Summit Attendee List Grows

The Canadian dollar was dragged lower as volatility in the energy markets continues with higher oil supplies and the oil output summit swapping places in headlines. Organization of the Petroleum Exporting Countries (OPEC) member Iran is willing to freeze production output of crude, but not at January levels as Saudi Arabia and Russia have been discussing. Iranian production was halved as the international sanctions that were lifted this year took its toll. The plan from Tehran is to boost production back to pre-sanction levels; around 4 million barrels a day from current 2.8 million barrels.

The non committal nature of crude producers were dismissed with the announcement of the date for an April meeting in Doha to discuss the details of the production freeze. Algeria and Nigeria made comments today in support for the Doha summit to freeze oil output. The price of oil was lower after Libya had announced it would not participated in the summit and the aftermath of the Brussel attacks.

FX Market events to watch this week:

Wednesday, March 23
10:30 am USD Crude Oil Inventories
5:45 pm NZD Trade Balance
Thursday, March 24
5:30 am GBP Retail Sales m/m
6:15 am EUR Targeted LTRO
8:30 am USD Core Durable Goods Orders m/m
8:30 am USD Unemployment Claims
Friday, March 25
8:30 am USD Final GDP q/q

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza