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Currency strategists said Tuesday that the first federal Conservative budget in 13 years will help cement Canada's strong economic position, but have a negligible effect on the soaring Canadian dollar.

George Davis, chief foreign exchange technical analyst at Royal Bank of Canada, said there were few surprises in Prime Minister Stephen Harper's inaugural budget.

“The government is forecasting the maintenance of a surplus in Canada, and that will be viewed as positive by the international marketplace,” he said of the government's plan to pay down $3-billion of debt a year. “In terms of the bottom line, the tax cuts combined with the maintenance of a surplus as well as the new spending initiatives will be stimulative for the Canadian economy, and will justify the Bank of Canada retaining its current hawkish stance in order to control inflation.”

Mr. Davis described the dollar's reaction to the budget as “muted,” saying that it crept marginally higher in the first minutes after the document was released. He said the budget will be seen as slightly bullish for the loonie and forecast slight gains in overnight trading.

The Canadian dollar surged past the 90 cent (U.S.) mark and rose as high as 90.41 cents during the regular trading session before ending at an official Bank of Canada close of 90.38 cents, up 0.55 of a cent from Monday. The loonie has been trading at its highest since early 1978 since Friday, boosted by soaring commodity energy prices, continued global investment demand, and bearish sentiment on the U.S. currency.

“There are other factors right now that are more important, but this budget has done nothing to derail the positive sentiment towards the Canadian dollar,” Mr. Davis said.

Greg Guichon, the managing director and portfolio manager at Rockwater Asset Management, said lower tax rates will stimulate spending on big-ticket items such as cars and houses. In his opinion, the Conservative government struck the right tone with the document, rewarding the people who are making the money.

“This will stimulate more investment activity into this country, it will bring more investors to this country,” Mr. Guichon said. “By building a better economic climate through reducing taxation for the individuals that live here, that will in turn encourage investment.”

As promised, Finance Minister Jim Flaherty delivered a budget focused on tax cuts, including a reduction in the goods and services tax by one percentage point to 6 per cent, tax breaks for transit riders, aid for students buying textbooks and those with scholarships, as well as a $1,200 (Canadian) annual child-care allowance to parents for each child under the age of six.

In terms of business-related items, starting in 2008, a planned corporate income tax cut will take the rate to 19 per cent by 2010 from 21 per cent. The Conservatives will scrap the federal capital tax as of Jan. 1 this year, two years ahead of schedule, at a cost of $795-million.

Mr. Harper's first budget makes good on many of the promises he made during the recent election campaign. The document brought forth by Mr. Harper's minority Conservatives increases spending on the military and trims spending on the previous Liberal government's commitments to daycare and climate-change abatement.

The budget also outlines plans to follow through with the Liberal initiative of eliminating the so-called double taxation of dividends from large corporations, a move designed to help level the playing field between dividends and interest or income trust income.

BMO Nesbitt Burns economists Douglas Porter and David Watt said that was a “big positive” for equities, which are also expected to benefit from the corporate tax cuts. “The capital tax was a productivity-killing levy as it ignored corporate profitability and was a roadblock to desperately needed investment in machinery and equipment,” they wrote in a note.

The tax cuts outlined in the budget will reach $21.8-billion in the next two years, the BMO economists said. Combined with the spending announcements, the budget will account for 0.6 per cent of the GDP this year and will likely keep the Bank of Canada on its tightening path.

“There are few major surprises in this year's budget, but the clear shift to an emphasis on tax cuts and away from spending is a net positive for Canadian financial markets,” Mr. Porter and Mr. Watt said.

Maria Jones, a foreign exchange strategist with TD Securities, said that the market was not expecting the reduction in the lowest income tax bracket. That, along with the added employment tax credit, might provide a little bit of extra stimulus, she said.

“That is a small positive for the Canadian dollar but I would not expect a big reaction,” she said, adding that the loonie has a number of other critical factors that are driving it right now.

The Conservative government's commitment to paying down the down will be “a positive” for currency investors eyeing Canada, Ms. Jones said. “We are the only G7 country that is running a budget surplus.”