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Canada Increases International Securities Holdings

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Canada Increases International Securities Holdings

Canadian International Securities Transactions have just been released by Statistics Canada for the month of April. Foreign Portfolio Investment in Canadian Securities is now at C$10.13Bn in contrast to March’s -C$1.23Bn, the market consensus expectation number was C$4.27Bn. On the outgoing front Canadian Portfolio Investment in Foreign Securities has come in at C$2.49Bn for April in comparison to March’s reading of C$7.88Bn.

This International Securities Transaction data is sometimes considered obscure in terms of the more mainstream regular economic data from the Canadian authorities, however it is important as Canada’s trade balance data does not present a complete view to the currency markets due to the fact that it only include physical goods and services. The securities transactions give a valuable insight into other capital flows in and out of the Canadian Dollar.

Trade is just one of the engines of growth that is ensuring Canada’s place near the top of the global recovery league table. Retail and manufacturing are also playing their part in an economy that is facing relatively few challenges compared to many of it’s G7 peers. The specter of a housing bubble however is increasingly weighing on the long term sustainability of the Canadian economy.

The phenomena of house price growth along with the potential problems this creates has been well flagged by international observers including the OECD and the IMF. Now finally, the Bank of Canada (BoC) is joining the chorus of those warning against the potential formation of such an asset bubble. Last week the Bank published it’s semi annual review of the Canadian economy where it acknowledged that the prospect of a sharp collapse in house prices is now possible, albeit not probable. The main concern of the BoC is the significant impact that such a collapse could have on the Canadian economy. The Bank has not yet hinted that it could use interest rates to cool the housing market but given the emerging risks this could well become an option in the not too distant future.

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