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Canadian Dollar Shows Marked Strength Ahead of Liberal Party Verdict on Budget

Blog by Shaun Kimmins | January 28th, 2009

(CEP News) - The Canadian dollar is making broad-based gains on Wednesday, with market attention turning to Liberal Party leader Michael Ignatieff's impending response to the Conservative government's budget proposal on Tuesday.

The loonie is currently showing marked strength as it rises against other major foreign currencies. The loonie is up 0.0161 to 0.8290 against the U.S. dollar, due in part to USD weakness, as the safe-haven greenback falls sharply amid rallying equity markets.

The safe-haven U.S. dollar has traditionally fallen during periods of risk appetite over the course of the financial crisis. Elsewhere, however, the loonie is up 0.0062 to 0.6238 against the euro and up 0.0026 to 0.5779 against the pound sterling.

In terms of Asia-Pacific currencies, the loonie is up 0.0069 to 1.2360 against the Australian dollar and up 1.78 points to 74.08 against the yen.

Ignatieff is expected to make his decision as to whether or not the Liberals will support the budget at 11 a.m. EST. This comes after Finance Minister Jim Flaherty presented his budgetary proposal on Tuesday, which would push the government into deficit for the first time in more than a decade, but reportedly help pull the economy out of recession.

"The federal government is projecting deficits of $33.7 billion and $29.8 billion [over the next two fiscal years]. We would be surprised to see the budget turned down (which would be bearish CAD), in the context of further delays in enacted measures," wrote RBC Capital Markets rates and FX strategist Christian Lawrence.

Economists from Desjardins praised the proposal, saying Flaherty struck the right balance between not enough fiscal stimulus and too much.

"[The measures] will represent 1.9% of [gross domestic product] in 2009 and 1.4% in 2010, including the leverage effect. This is a bit less than the 2% suggested by the International Monetary Fund but more than the 1% often mentioned to take into account Canada's advantageous situation in comparison to that of other industrialized countries, namely the United States," they said.

CAD/USD up 0.0161 to 0.8290.
CAD/EUR up 0.0062 to 0.6238.
CAD/JPY up 1.78 to 74.08.
CAD/GBP up 0.0026 to 0.5779.
CAD/AUD up 0.0069 to 1.2360.

All data taken at 9:14 a.m. EST

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