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Canada dollar ends down despite stimulative budget

TORONTO: The Canadian dollar ended down slightly on Monday after receiving little positive impetus from Finance Minister Paul Martin's tax-cutting budget for fiscal 2000-01.

"It has actually shown little response to the details of the budget coming out," said one New York-based currency trader with a major Canadian bank.

The Canadian dollar closed at C$1.4512 (68.91 US cents) on Monday after closing at C$1.4495 (68.99 US cents) in the previous session. After the official close, the currency drifted down to the C$1.4515 area.

It weakened off significantly early in the early afternoon, sliding to the C$1.4552 area around 1:00 p.m, and then strengthening to C$1.4500 in the period just before Martin delivered his budget speech at 4:00 p.m.

The currency appreciated briefly after the budget, reaching the C$1.4478 level about 20 minutes after its release, but quickly relinquished all of its gains and actually weakened marginally.

Market watchers said most of the elements of the budget which cuts taxes by at least C$58 billion over the next five years had already been leaked to the Canadian media.

Currency markets may also react on a more sustained basis in the coming hours as the details of the budget are analysed and digested, the New York currency trader said.

"It is a fickle market, and I think we'll scrutinise the details closely, and I think that's what a lot of people are doing right now," he said.

As the budget recedes, the market will also focus more on Canada's fundamentals, which may result in a gradual improvement in the currency's fortunes, the trader said.

"I think now that we have the budget behind us, the market will focus in more on the fundamentals, and hopefully the Canadian currency can improve," the trader said.

Trading in the currency was extremely thin on Monday, the trader added.

Monday's budget, which also sees spending increase by C$4.5 billion in the 2000-01 fiscal year, will be stimulative for the Canadian economy, but not massively so, said Craig Wright, deputy chief economist with the Royal Bank of Canada.

"It is a net stimulus, which is something we haven't been used to for the last decade or so," Wright said.

The impact of more stimulative fiscal policy on the Bank of Canada's monetary policy stance in coming months will have to be monitored, he added. "I don't know if it alters the (Bank of Canada's) growth forecasts, or anything like that, but the interplay between fiscal and monetary policy is always something you have to watch," Wright said.

The overall market reaction to the budget should be neutral to positive, he added.

In cross-trading against major currencies, the Canadian dollar was at 75.34 yen and at C$1.4095 against the euro. The Canadian dollar was at A$1.1194 against the Australian dollar.-Reuters