The dollar advanced 0.28 of a cent to 95.58 cents US.
Finance Minister Jim Flaherty delivered the news Tuesday as part of his latest economic update. The new projection is nearly $3 billion better than the March budget forecast.
"Ottawa has managed to keep its finances on the straight and narrow through a prolonged period of sluggish growth," said BMO Capital Markets senior economist Alex Koustas.
"Exceptionally low borrowing costs and fewer spending pressures than faced by the provinces have helped," Koustas added.
Markets will digest the latest Canadian trade figures on Thursday and manufacturing sales on Friday.
Elsewhere on currency markets, the British pound advanced after Bank of England governor Mark Carney said unemployment in Britain is falling faster than anticipated, raising speculation that interest rates may start rising sooner than expected.
The unemployment rate fell to 7.6 per cent in the three months to September from 7.7 per cent in the previous three-month period. The Bank of England is watching the rate closely, having said it won’t consider raising interest rates before unemployment falls to seven per cent.
Traders also absorbed news that economic growth across the eurozone may have stalled in the third quarter.
Eurostat, the EU’s statistics office, reported that industrial output across the 17-country euro currency zone fell to a monthly rate of 0.5 per cent in September. The drop was slightly larger than expected and means the sector weighed on third-quarter growth.
The decline during the month was largely due to falls in the core economies of Germany and France.
Traders also looked to confirmation hearings for Janet Yellen as the new Federal Reserve chief on Thursday that could provide a fresh cue for financial markets.
Investors will look to her testimony for clues about when the Fed might begin reducing its massive monetary stimulus that has supported a strong rally on many stock markets and kept the lid on long-term rates.
Yellen, known for her dovish stance on stimulus, has been tapped to replace Ben Bernanke as Fed chairman at the end of January.
There was also lingering disappointment that a meeting of Chinese leaders failed to yield reforms to a growth model that is seen as running out of momentum. Communist party leaders in Beijing wrapped up a four-day meeting on the economy late Tuesday.
Reform advocates had hoped for major changes such as curbing the dominance of state industry.
But they were disappointed as the ruling party said only that market forces would play a “decisive role” in China’s economy, an upgrade from “core role” assigned to the market.
On the commodity markets, December crude oil on the New York Mercantile Exchange gained 84 cents to US$93.88 a barrel a day after falling to a five-month low. Traders are waiting for the latest data on U.S. crude stocks. Data for last week is expected to show an increase in crude oil stocks of 1.8 million barrels. That would mark the eighth straight weekly increase.
Copper prices fell for a second day in the wake of the Chinese leadership meeting, down seven cents to US$3.16 a pound.
Gold bullion prices gave up early gains with the December contract down $2.80 to US$1,268.40 an ounce.