Canadian dollar near flat after budget provides subdued fiscal lift

TORONTO (Reuters) - The Canadian dollar was little changed against the greenback on Wednesday ahead of an interest rate decision from the Federal Reserve and after Canada's federal budget fell short of the amount of stimulus that might move the Bank of Canada.

Canadian Prime Minister Justin Trudeau's government, seeking to move past a political crisis threatening its re-election, lavished new spending on middle-class voters in its budget on Tuesday as it forecast a bigger fiscal deficit of C$19.8 billion in 2019-20.

The budget contained spending measures that could lift gross domestic product by 0.2 percent this year, which is "not enough to move the dial on Bank of Canada policy," Sal Guatieri, a senior economist at BMO Capital Markets, said in a note.

The market has shifted from expecting further rate hikes from the Bank of Canada, which has tightened 125 basis points since July 2017, to seeing potential for a rate cut as data showed a slowdown in the country's economy.

Canada said on Tuesday it would issue nearly 20 percent more bonds in the coming fiscal year to help the Liberal government fund its spending programs.

At 9:31 a.m. (1331 GMT), the Canadian dollar was trading nearly unchanged at 1.3321 to the greenback, or 75.07 U.S. cents. The currency traded in a range of 1.3316 to 1.3345.

The U.S. Federal Reserve on Wednesday is expected to hold interest rates steady, shave the number of hikes projected for the rest of the year, and release long-awaited details of a plan to end the monthly reduction of its massive balance sheet.

The price of oil, one of Canada's major exports, was dragged down by concerns about global economic growth as the U.S.-China trade dispute rumbled on, but receiving some support from tightened supply. U.S. crude oil futures were down 0.3 percent at $58.86 a barrel.

Canadian government bond prices were little changed across the yield curve, with the 10-year rising 3 Canadian cents to yield 1.725 percent.

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

(Reporting by Fergal Smith; Editing by Nick Zieminski)

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