(The Canadian Press) TORONTO – The Canadian dollar advanced Tuesday morning while traders looked ahead to the release of the federal government's new budget.
The loonie was ahead 0.15 of a cent to 90.61 cents US as the U.S. dollar backed off ahead of the other major market event of the day – testimony later in the morning by the new chair of the Federal Reserve.
Finance minister Jim Flaherty tables his new budget at 4 p.m. EST with surprises expected to be minimal.
``The government is expected to stay the course on its path to budget surplus, opting to set the stage for new initiatives to be introduced once the government is back on positive fiscal footing in 2015/16,'' said RBC Economics economist Laura Cooper.
``With fiscal performance year-to-date showing a modest deterioration from the same period in fiscal year 2012/13, expenditure restraint is likely to supersede the introduction of new initiatives.''
Meanwhile, traders will be looking for Janet Yellen's views on the economy, inflation and the gradual pullback of the Fed's key bond-buying program.
Yellen's remarks – her first since taking over the top job the Fed earlier this month – have been highly anticipated, particularly coming after developments last week that saw rising concerns about employment after January job creation fell well short of expectations and fresh worries about emerging markets.
Markets will also seek reassurance that Yellen won't deviate from the message that her predecessor Ben Bernanke sent Congress last year: that the economy's outlook is bright enough to withstand a slight pullback in their stimulus. At the same time, rates should stay low to fuel a still-subpar economy.
The Fed has moved twice over the last two months to cut its bond-buying program by a total of US$20 billion to $65 billion and analysts generally expect the Fed to continue cutting by $10 billion every meeting.
Traders are also braced for what could be some further negative news from China after data last week showed the manufacturing sector in the world's second-biggest economy still expanding but at a slower pace.
Meagre trade growth is expected when import and export data is released Wednesday. Inflation data comes out the next day and Barclays Research said it expects inflation to moderate to 2.3% year over year in January from 2.5% in December, thanks in large part to lower food inflation.