The Canadian dollar has posted slight gains in the Tuesday session. Currently, USD/CAD is trading at 1.3310, down 0.20% on the day. On the release front, Canada releases its annual budget, which should be treated as a market-mover.

All eyes are will be on the Federal Reserve, which holds a policy meeting on Wednesday. The Fed is widely expected to maintain the benchmark rate at a range between 2.25 – 2.50 percent. Investors will be expecting the Fed to play a dovish tune in the March rate statement. The Fed’s balance sheet will also be under scrutiny, with the policymakers expected to announce when they will stop reducing the $4 billion balance sheet. The Fed has been reducing assets by $50 billion a month, but there has been criticism that this tightening is choking economic growth. The Fed will also publish its new dot plot, which is used to convey its interest rate outlook.

Is the Canadian economy heading into a recession? Despite some strong employment numbers, there are worrying signs. The economy recorded a weak 0.4% gain in Q4 on an annualized basis and has been listless early in 2019. David Wolf, a former senior official at BoC, has projected that the Canadian dollar could sink to its record low of 1.60 (62 cents U.S.). Weak oil prices and the global trade war have hurt the Canadian economy and dampened the critical export sector, and the Canadian dollar, which is down 1.40% in March, could face further headwinds.

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