Canada's broad business-tax reforms could support the Canadian dollar by encouraging investment, lifting growth expectations and making the country more attractive to international investors, according to Corpay in a note Wednesday.
Prime Minister Mark Carney announced the reforms Tuesday at the Canada Investment Summit in Toronto, allowing companies to immediately deduct the full cost of a wider range of new investments.
The reforms are unlikely to significantly weaken Canada's fiscal position, with the government estimating a CA$36 billion cost over five years, wrote Corpay Chief Market Strategist Karl Schamotta in the note.
The measures could also strengthen the case for tighter Bank of Canada policy, said Corpay.
"Although a broad-based recovery in the [US] dollar will keep the loonie on the back foot for now, with gains capped in the near term by trade uncertainties, the outlook into next year is brightening, putting the pieces in place for an eventual recovery," added Schamotta.