Canadian dollar near flat ahead of federal budget, Fed rate decision

TORONTO (Reuters) - The Canadian dollar was little changed against the greenback on Monday as investors weighed the potential impact of Tuesday’s federal budget on Canada’s fiscal deficit and bet that the U.S. Federal Reserve will strike a dovish tone this week.

FILE PHOTO: A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015. REUTERS/Mark Blinch

With a federal election looming and Prime Minister Justin Trudeau’s government facing its worst political crisis in four years, Canada’s ruling Liberals are expected to table a goody-filled budget in a bid to get back on course with voters.

At 4:05 p.m. (2005 GMT), the Canadian dollar was trading nearly unchanged at 1.3341 to the greenback, or 74.96 U.S. cents. The currency, which advanced 0.6 percent last week, traded in a range of 1.3304 to 1.3365.

“Maybe we have seen a lot of the good news in Canada already as far as the currency is concerned,” said Hosen Marjaee, senior portfolio manager at Manulife Asset Management. “If the deficit widens much more than expectations there might be a hit to the currency.”

Canada finances its fiscal deficit, which is about 1 percent of gross domestic product, by selling bonds to domestic and foreign investors.

Foreign investors bought a net C$28.40 billion in Canadian securities in January, led by federal government bonds, following a revised C$20.49 billion total divestment in December, Statistics Canada said on Monday.

The U.S. dollar declined against a basket of major currencies ahead of the Fed interest rate decision on Wednesday. Traders expect there will be no Fed rate hikes this year, and are even building in bets for a rate cut in 2020.

The price of oil, one of Canada’s major exports, was supported by the prospect of prolonged OPEC-led oil supply curbs and signs of inventory declines in U.S. crude stockpiles.

U.S. crude oil futures settled nearly 1 percent higher at $59.09 a barrel.

Canadian government bond prices were little changed across the yield curve, with the 10-year flat to yield 1.716 percent. On Friday, the 10-year yield touched its lowest since June 2017 at 1.704 percent.

Canada’s inflation report for February and January retail sales data are due on Friday.

Reporting by Fergal Smith; Editing by Susan Thomas