Canada Country Profile - Economy, Currency, Central Bank, Canadian Dollar, CAD

Introduction

Canada is the 8th largest economy in the world with GDP valued at C$1.269 trillion in 2006, and a population of 32 million. The country has been growing consistently since 1991. Canada is currently the world's 5th largest producer of gold and the 14th largest producer of oil. However, two-thirds of the country's GDP comes from the service sector, which employs 3 out 4 Canadians. Manufacturing and resources are very important for the Canadian economy, as it represents over 25% of the country's exports.

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Canada's Fundamental Indicators and Chart

Monthly Data for May, 2008

Date	EST	Indicator	Actual	Forecast	Previous
5/1	11:45am	BOC Governor Carney Speaks
		BOC Governor Carney will testify before the Standing Senate Committe on Banking, Trade and Commerce Provided by: Bank of Canada
5/6	8:30am	Building Permits	-4.5%	1.1%	-0.8% -1.0%
		For March Provided by: Statistics Canada The Canadian housing market has been cooling, as permits have been steadily dropping. Building permits indicate buying intentions that that raise demand and translates to building intentions. Approvals for the residential sector decreased 5.7% to $3.6million. A 4.6% increase in multi-family home approvals was overwhelmed by a 8.5% decrease in sing-family homes. This is consistent with a 5-year trend of the demand shift towards the less expensive multi-family dwellings. Non-residential building permits also declined, though at a slower rate of 2.4%. Comericial property permits increased 5.3%, whereas industrial permits plunged 21.9%. Institutional component also fell 4.7%. From the release: Construction intentions in Canada continued to cool. As a result of a marked decline in Alberta, the total value of building permits in Canada dropped 4.5% in March to $5.6 billion. This was the fourth decrease in five months. Both residential and non-residential sectors declined in March.
5/6	10:00am	Ivey PMI	57.6	54.0	59.0
		"Ivey Purchasing Managers Index" for April Monthly Comment from: Purchasing Management Association of Canada The Canadian Dollar strengthened following its Ivey PMI index, which beat expectations, giving support to the health of the Canadian economy. The USD/CAD pair lurched 80 pips in the Loonie's favor, meeting support at 1.0050. Oil testing above the $120 per barrel level had been giving the Canadian currency underlying strenght earlier in the week. In the hours prior the report the pair had been consolidated near 1.01 and was actually strengthening in the greenback's favor before it plunged on the news. From the release: The Ivey Purchasing Managers Index by the end of April, 2008 stood at 57.6. The corresponding figure for April 2007 was 60.9 and for April 2006 was 55.7. The Employment index for April stood at 54.3, Inventories 53.8, Supplier Deliveries were 42.9 and Prices were 80.7. The Ivey PMI is not adjusted for seasonality or inflation and shows responses to one question: "Were your purchases last month in dollars higher, the same, or lower than the previous month?" A figure above 50 shows an increase while below 50 shows a decrease.
5/8	8:15am	Housing Starts	213.9K	225K	243K 255K
		For April Provided by: Mortgage and Housing Corporation March's Release: News Release The annual rate of housing starts declined by 12% in April, as multiple dwelling starts fell 19%. Multiple starts had recorded the 2nd and 3rd highest rate for March and February, since 1978, but retreated in April. despite the poor figures, Bob Dugan, the Chief Economist at CMHC's Market Analysis Centre, maintained that housing starts " remain robust at over 200,000 units." From the release: The seasonally adjusted annual rate of urban starts went down in all regions of Canada, except British Columbia, which saw an increase of 17.1 per cent to 34,900 in April. Urban starts decreased to 7,500 units in Atlantic Canada, 37,600 units in Quebec, 73,000 units in Ontario, and 32,400 units in the Prairies. In terms of single urban starts, all regions except Quebec were down in April. Quebec registered an increase of 9.3 per cent to 12,900 units.
5/9	7:00am	Employment Change	19.2K	10.0K	14.6K
		For April Latest Official Release: Statistics Canada The Canadian economy continue to support its labor force, adding 19,200 new jobs after 3 strong months of employment growth. Over the past 12 months, employment increased by an estimated 348,000 or 2.1%, with full time growing twice as fast as part time said StatCan. From the release: "Employment edged up slightly in April (+19,000), similar to the increase observed in March. This follows large gains at the start of the year. The unemployment rate nudged up to 6.1% in April as more people entered the labour force. Self-employment and full-time work accounted for all of the gains in April. In April, employment increased in accommodation and food services, as well as construction. Over the past 12 months, the construction industry led employment growth, adding 113,000 workers. Manufacturing continued its decline in April, with losses in Ontario and British Columbia. Overall, the number of factory workers has decreased by 112,000 since April 2007."
5/9	7:00am	Unemployment Rate	6.1%	6.0%	6.0%
		For April Latest Official Release from: Statistics Canada
5/9	8:30am	Trade Balance	5.5B	4.5B	4.8B 4.9B
		For March in C$ Provided by: Statistics Canada Official Release: News Release The trade widened to the highest level since May 2007. Exports rose 1.6% for the 3rd straight month of growth. Higher prices were the main reason for export growth as volume generally declined. Imports fell for a second month in a row, falling 0.3%. The Canadian Dollar was stronger overnight, and kept its gain in the hour following the release. From the Release: "Canada's merchandise trade surplus with the world expanded for the third consecutive month in March as exports grew and imports declined.The trade surplus with the world jumped to $5.5 billion, its highest level since May 2007. Exports to the United States climbed for the third month in a row while imports from Canada's southern neighbour decreased. Consequently, the trade surplus with the United States rose to $8.6 billion, the highest level since April 2006.The trade deficit with countries other than the United States fell to $3.1 billion, contracting for the third straight month with exports increasing at a much faster pace than imports. Increased exports to Mexico and Norway contributed to the monthly rise."
5/12	8:30am	New Housing Price Index			0.3%
5/22	8:30am	Retail Sales
		Monthly Rate for March Official Release: Statistics Canada
5/22	8:30am	Retail Sales excl. Autos
		Monthly Rate for March Official Release: Statistics Canada

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Central Bank Watch - Latest Bank of Canada Decision

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April
22nd, 2008

Actual

Forecast

Revised Form

3.00%

3.50%

N/A

Provided by the Bank of Canada
Official Release: Press Release

The Bank of Canada cut rates by 50 basis points as the drag in the US economy has consequences on the Canadian economy. Exports are expected to decline, and tight credit conditions will moderate business investment and consumer spending.

From the Release:

"Growth in the global economy has weakened, reflecting the effects of a sharp slowdown in the U.S. economy and ongoing dislocations in global financial markets. Growth in the Canadian economy has also moderated as buoyant growth in domestic demand, supported by high employment levels and improved terms of trade, has been substantially offset by the fall in net exports. While both total and core CPI inflation were running at about 1.5 per cent at the end of the first quarter, the underlying trend of inflation is judged to be about 2 per cent, consistent with an economy that was operating just above its production capacity.

The Bank is now projecting a deeper and more protracted slowdown in the U.S. economy... The Bank projects that the Canadian economy will grow by 1.4 per cent this year, 2.4 per cent in 2009, and 3.3 per cent in 2010.... In line with this outlook, some further monetary stimulus will likely be required to achieve the inflation target over the medium term. Given the cumulative reduction in the target for the overnight rate of 150 basis points since December, the timing of any further monetary stimulus will depend on the evolution of the global economy and domestic demand, and their impact on inflation in Canada."

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Central Bank Watch - Bank Officials' Comments

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November 01 (BOC Governor Dodge) -- The Canadian dollar has seen some selling pressures stemming from comments over the weekend by Bank of Canada Governor Dodge. Speaking to reporters at the G-20 meeting of finance ministers and central bankers in South Africa, Dodge said that financial market volatility and downside risks to the world economy have increased since early October, and that this "clearly poses a risk that we are going to have to take into account when setting our own policy.

Dodge Comments

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Economic and Financial Profile

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Exports Oil and Commodities:

The Canadian Dollar is influenced by prices for oil and other commodities. Canada is the 12th largest exporter of oil in the world (1.1 mil barrels per day), with most of it going to the United States. The country is also the 7th largest producer of oil (3.3 m. b. per day) which it uses domestically. It is also a world leader in the production of gold, nickel, uranium, diamonds, and lead. A strong rise of the price of oil and commodities has helped boost appreciation of the Canadian Dollar, especially in Sept/Oct 2007. This can be seen in longer term too.

Closely Tied To United States:

The Canadian Dollar is strongly impacted by economic conditions in the United States, as the U.S. is Canada's main trading partner in terms of exports (80%) and imports (66%). A downturn in US spending means less activity for certain export industries in Canada. This cross border trade is sensitive to the exchange rates between the US and Canadian Dollars, as a stronger Canadian Dollar will make Canadian exports more expensive, and US imports cheaper for Canadian consumers.

Financial institutions in Canada are also tied to activities on Wall Street, and the performance of certain US sectors, especially banking and finance. This has been seen recently as sub-prime mortgage woes have manifest themselves on Canadian banks balance sheets and lowered the Canadian stock markets.

Appreciation vs the Dollar:

The Loonie, a nickname for the Canadian Dollar, hit a record low versus the Dollar in 2002. At that time 1 US Dollar was worth C$1.58. The last 5 years have changed thing dramatically as the currencies hit parity in September 2007, and in November '07, the exchange rate stood at 1 US dollar = C$.905. The Loonie had appreciated 42% in that span gains accelerating during 2007. This strong appreciation was a result of American currency and economic weakness and high prices for Canadian exports such as oil, gas, and metals.

This figure is a monthly chart, of the USD/CAD pair. Prices moving upward favor the strength of the US Dollar (the top currency in the USD/CAD quote). When prices move down they favor the Canadian Dollar (the bottom currency in the pair).