The first formal Federal budget in 25 months was full of new programs and spending but basically a non-event for the USD to CAD exchange rate because it contained few macro surprises. The projected deficit and debt picture remains within range of market expectations. Debt to GDP will peak at 51% next year (31% prior to pandemic) but that causes no concern to the markets because it comes in the context of a global surge in sovereign debt and because low interest rates make debt servicing manageable. In fact, the most interesting aspect of the budget for the currency markets may be the fact that the government will look to lock in low rates by increasing long-term bond issuances. The overall impact of that move on the yield curve in Canada relative to other countries may influence exchange rates in the long term. For now, the Loonie remains range-bound and is trading right in the middle of where it has been for the last few weeks. Next up for the Canadian dollar is tomorrow’s interest rate release from the Bank of Canada and the March inflation report.
