By Paul Baiocchi

On Tuesday the bank of Canada will put forth its interest rate decision and while a 25 basis point cut to .25% is likely already priced in, the focus will shift to the bank's quantitative easing plan. Much like its larger neighbor to the south, Canada has begun mulling the idea of purchasing both public and private debt. Based on the bank governor's candid statements about the gloomy economic outlook, this outcome may be a foregone conclusion.

The question for investors will be how will this affect Canada's most important industries and what impact, if any, will it have on the countries exchange rate? Many well-respected analysts have been calling for resurgence in the Canadian Dollar based on the rebound in commodity prices and the relative stability of the country's banking system. While this sentiment makes sense on the surface, it is painfully obvious that Canada's corporations are still facing substantial hardship in accessing credit. Part of the government's policy will be aimed at alleviating these problems and opening up the credit markets to private enterprise, but at what cost to investors?

Those holding Canadian sovereign debt will likely be the short-term beneficiaries of government fixed income purchases while Canadian corporations looking to borrow will likely see a sizeable reduction in their borrowing costs. Meanwhile, it remains unclear how much relative strength the Loony will lose in terms of U.S. dollars. After all, if any currency is attempting to price in a comprehensive quantitative easing package, it is the greenback-and it hasn't suffered much as a result.

It's more likely, however, that Canadian dollar weakness may appear more pronounce versus another currency. ECB President Trichet's hawkish language will likely benefit the Euro at the expense of the Canadian Dollar. As a result, those multinational resource producers with substantial operations in Canada will likely see margin expansion. Currency traders looking to profit from Tuesday's meeting might want to look up a cross trade long EUR/USD and short CAD/USD, while a more direct play would be to go long the Euro versus the Loony.