The drift lower in the Canadian Dollar (CAD) is extending this morning, leaving it as a relative underperformer on the day with a loss of 0.2% versus the US Dollar (USD), Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

CAD underperforms broadly

"As expected, the Federal budget laid out significant spending on housing, defence, infrastructure and productivity and competitiveness, all aimed at boosting investment and lifting growth. The red ink spillage is significant, though with the current FY deficit forecast to rise to CAD78bn (well above the CAD42bn projected under the previous government back in December)."

"The minority government will need help for the budget legislation to pass but another election seems very unlikely at this point. The CAD looks unimpressed and spot gains are deviating more significantly (well above one standard deviation) from our fair value estimate (1.3917) again."

"Spot dollar gains through the 1.4080 resistance point (now initial support) have been flagged as a risk for a while now and the USD’s progress through to the 1.41 handle this morning points to further appreciation to the 1.4160 area (50% retracement of the Feb/Jun decline in the USD at 1.4167)."