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Canadian International Securities Transactions

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Statistics Canada has reported on the Canadian International Securities Transactions for the month of March. Foreign Portfolio Investments in Canadian Securities has come in at -C$1.23Bn compared to the previous months C$6.08Bn and the market anticipated figure of C$7.21Bn. On the other side of the coin, Canadian Portfolio Investment in Foreign Securities has been announced at C$7.88Bn in March compared to the February number of C$6.03Bn.

Canada’s trade balance figures provide an incomplete picture to the currency markets as they only include goods and services. The International Securities Transaction data offers an insight into other capital flows in and out of the Canadian Dollar.
The robustness of the Canadian economy through the recent economic crises has prompted many global Central Banks to increase their holdings of Candian Government debt. Current estimates suggest that approximately US$200Bn of Canadian denominated public debt is now held by foreign Central Banks. This figure has roughly doubled on one year ago when the International Monetary Fund estimated it to stand at just over US$113Bn. Most of this increased investment in Canadian Debt is coming from emerging economies as opposed to developed economies that still tend to prefer the traditional major currency denominated assets.

The fact that it is emerging economies investing in Canadian bonds would suggest that these holdings will only increase as these emerging economies grow, thus creating some underlying demand for the Canadian Dollar and adding to upward pressure on the currency. Further, the limited number of Canadian government bonds in issue will likely lead to a compression of these bond yields. The Bank of Canada has also noted a slight fall off in liquidity in it’s Governments bond markets as the emerging market buyers adopt a buy and hold approach to Canadian debt, this phenomena is not currently an issue but at the pace at which demand for Canadian debt is increasing then it is likely to become relevant sooner rather than later.

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