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 June, 2008

Date	EST	Indicator	Actual	Forecast	Previous
6/5	8:30am	Building Permits	14.5%	0.4%	-4.5%
		For April Provided by: Statistics Canada Building approvals rose 14.5% in April, coming in way above forecasts, and reversing some of March's 4.5% drop. Its the highest level since October. Multi-family homes led the larger than expected increase as they jumped 39.9%, overshadowing a 2.4% fall in single-family units. Nonresidential building activity was also strong, rising 16.5%. Canada has for the most part avoided a housing meltdown following this past summer's credit crunch. Ontario, which has the felt the effects of the US slowdown as manufacturing and exports decline, still has a viable and strong housing market. Permits for multifamily homes rose over 50% in that province in April.
6/5	10:00am	Ivey PMI	62.5	58.8	57.6
		"Ivey Purchasing Managers Index" for May Monthly Comment from: Purchasing Management Association of Canada From the release: The Ivey Purchasing Managers Index by the end of May, 2008 stood at 62.5. The corresponding figure for May 2007 was 62.7 and for May 2006 was 75.0. The Employment index for May stood at 59.3, Inventories 55.2, Supplier Deliveries were 45.7 and Prices were 82.9. 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.
6/6	7:00am	Employment Change	8.4K	10.2K	19.2K
		For May Latest Official Release: Statistics Canada Following a couple months of small increases, employment change for May was essentially flat, and was 2.0% higher than May of last year. The unemployment rate remained at 6.1% but the participation rate was at a record high 68%. Notable gains in employment were seen in the labor force for women as well as those between 20 and 24. Also, any gains this month came mostly from Quebec. With expectations of a higher employment growth, the Canadian labor force dissapointed, yet the Loonie has been pressured of late already. Ahead of the US employment change, the loonie was only slightly pressured, as the USD/CAD climbed from 1.0200 to 1.0215 in the 15 minutes after the release.
6/6	7:00am	Unemployment Rate	6.1%	6.1%	6.1%
		For April Latest Official Release: Statistics Canada See "Employment Change"
6/9	8:15am	Housing Starts	221K	220K	214K
		For May Provided by: Mortgage and Housing Corporation Official Release: News Release Housing starts in Canada rose 3.5% in May, lifted by a suge in single starts. In seasonally adjusted terms, single starts were up 7.3% to about 78K units, while urban multiple starts grew 1.9% to about 116K units. From the releae: For the first five months of 2008, actual starts in rural and urban areas combined were up an estimated 0.7 per cent compared to the same period last year. Year-to-date actual starts in urban areas have increased by an estimated 5.6 per cent over the same period in 2007. Actual urban single starts for the five months of this year were 14.8 per cent lower than they were a year earlier, while multiple starts increased by 22.7 per cent over the same period.
6/10	8:30am	Trade Balance	5.1B	5.7B	5.7B 5.5B
		For April in C$ Provided by: Statistics Canada March's Release: News Release Trade activity increased in both directions. Exports to the US increased for a 4th straight month, reaching $30.6B. However, it declined with the rest of the world for the first time in four months. In total, exports grew 0.8%, lifted by rising energy prices on the strength of petroleum and natural gas. Energy products also lifted imports, which increased 2.6% in April after 2 months of declines. Energy products grew 19.0%, with volume increases trippling that of price increases. Also imports of motor vehicles rebounded 4.7%, from March's decline, but remain on a negative trend.
6/10	9:00am	Interest Rate Statement	3.00%	2.75%	3.00%
		Provided by: Bank of Canada Last Rate Statement: Press Release The Bank of Canada held the overnight rate at 3.00%. Economists had expected a rate cut. The bank feels that economic development has been more or less in line with its projections. The language the bank used on its inflation projection is less concerning or and more neutral than that used by other central banks recently. The Loonie rallied immediately after the release, as the market has been pricing in a rate cut, and now is correcting that evaluation. If current levels of energy prices persist, total CPI inflation will rise above 3 per cent later this year. However, with the Canadian economy operating in excess supply, core inflation is expected to remain below 2 per cent through 2009. Both total and core inflation should converge on 2 per cent in 2010 as the economy returns to balance.
6/11	8:30am	New Housing Price Index	0.0%	0.2%	0.2%
		For April Provided by: Statistics Canada Official Release: News Release New Housing Price Index y/y: 5.2%, pr. 6.1% Housing prices were flat over the month of April, and were up 5.2% on an annual basis, a deceleration from March's figure. the monthly rate was below forecasts, and the annual pace was the weakest in two and half years. The Saskatchewan province continued to see its housing prices climb (up 43.7% y/y), and Winnipeg and St John, Newfoundland reported double digit growth. Calgary and Edmonton saw prices decline, while Toronto and Vancouver saw about 5% growth. From the Release: "New housing prices increased at their slowest pace in more than two and a half years in April, despite strong markets in Saskatchewan, Newfoundland and Labrador and Nova Scotia. Nationally, contractors' selling prices rose 5.2% between April 2007 and April 2008, a slower pace than the year-over-year increase of 6.1% in March. This was the third consecutive month in which the increase has decelerated, and the slowest rate of growth since September 2005, when year-over-year prices rose by 4.9%. On a monthly basis, prices were unchanged between March and April. Regionally, for the 12th straight month, prices rose at the fastest pace in Saskatoon. It led the nation with a year-over-year price increase of 43.7%, although this was slower than the 46.2% gain observed in March."
6/11	8:30am	Capacity Utilization Rate	79.8%	80.7%	81.8%
		For Q1 Release from StatCan Industrial grousps are not operating at anywhere close to where they can. Q1 capacity utilization rate fell to the lowest in 15 years, with the automotive sector as the major drag. All groups except for oil and gas extraction saw declining production capacity. The Manufacturing sector markedly reduced its capacity use, falling from 80.3% to 77.2%. The decline is indicative of slowing aggregate demand.
6/13	8:30am	Manufacturing Shipments	2.0%	0.4%	-1.7% -1.6%
		For April Provided by: Statistics Canada March's Release: Press Release From the release: Manufacturers' factory sales rose by a sharp 2.0% in April to $49.8 billion, following a weak March (-1.7%). Gains were led by the petroleum products industry but still were broadly based as 17 of the 21 manufacturing industries, representing 80% of total sales, reported increases. Notable increases in chemicle products and machinery industries can be attributed to higher prices and shipments delayed from the previous month. The auto sector recovered from March's 5.9%, growing 1.8%. Manufacturing inventories rose 0.4%, unfilled orders grew 0.3%, but new orders fell 2.5%, putting a shade on a otherwise positive report of manufacturing activity.
6/13	8:30am	Labor Productivity q/q	-0.3%	-0.4%	-0.7%
		For Q1 Provided by: Statistics Canada Online Release From the release: In the first quarter of 2008, the labour productivity of Canadian businesses declined for a second consecutive quarter, in a context of inclement weather, reduced working hours, and a widespread drop in manufacturing output, especially in the motor vehicle industry. Productivity of Canadian businesses edged down 0.3% in the first quarter of 2008, slowing from the upward revised 0.7% decline in the fourth quarter of 2007. The back-to-back declines followed four quarters of growth. As the volume of work hours remained flat, Canadian businesses saw their output decline dragging down productivity. Business GDP fell 0.3% in Q1. The decline in productivity as well as reduction of capacity utilization rate indicates that businesses and industries are pulling back in response to slowing economy. Although today's manufacturing shipments figures bested forecasts by a long-shot, the weaker new orders component indicate soft demand.
6/16	8:30am	New Motor Vehicle Sales	-2.6%	0.0%	-0.5%
		for April
6/17	8:30am	International Securities Transactions	9.0B	4.0B	5.3B
		For April Provided by: Statistics Canada Official Release: News Release From the Release: "Non-residents' demand for Canadian securities continued to heat up, as substantial acquisitions of Canadian debt instruments in April drove foreign investment to its highest level since November 2006. Foreign investment in both short- and long-term debt instruments rebounded, while equity investment continued at a strong pace. Canadian investors added sizeable amounts of foreign instruments to their portfolios in April. Equities dominated the investment flows, as global stock markets strengthened. Investment in bonds bounced back while Canadians continued to avoid foreign money market instruments, especially US paper."
6/18	8:30am	Leading Indicators	0.2%	0.2%	0.0% 0.1%
		for May Report provided by: StatCan Current release The composite leading indicator improved after a revised flat reading for April. Household demand continued to be strong, and consumer spending for durable goods grew. The manufacturing sector improved on the back of better new orders, which is rebounding from a 3.3% drop in December and a strike in the auto industry.
6/19	7:00am	CPI excl. Volatile Items	0.3%	0.3%	0.3%
		For May Provided by StatCan
6/19	7:00am	Consumer Price Index m/m	1.0%	0.6%	0.8%
		For May Provided by: StatCan Official Release: News Release CPI y/y: 2.2%, forecast 1.9%, pr. 1.7% Bank of Canada Core CPI m/m: 0.3%, forecast 0.3%, pr. 0.3% Bank of Canada Core CPI y/y: 1.5%, forecast 1.5%, pr. 1.5% From the Release: "Consumer prices rose 2.2% in May compared with May 2007, up from the 1.7% increase reported in April, as drivers faced significant increases in gasoline prices. The 0.5 percentage point acceleration in the all-items Consumer Price Index (CPI) was the sharpest since September 2007. The 2.2% increase in May was the highest since January 2008, and was mostly a result of higher prices for gasoline, which rose 15.0% in May compared with the same month last year. This was considerably faster than the 12-month change of 11.6% posted in April. Excluding gasoline prices, the 12-month growth in May was 1.6%. The Bank of Canada's core index, which is used to monitor the inflation control target, rose 1.5% between May 2007 and May 2008, identical to the 12-month increase posted in April. Lower prices for passenger vehicles dampened the upward pressure on the core index. On a monthly basis, the seasonally adjusted all-items index rose 0.6% between April and May 2008, while the seasonally adjusted core index edged up 0.1%. The seasonally adjusted all-items rose 0.5% and the seasonally adjusted core index increased 0.4% between March and April. The 0.6% monthly increase in the seasonally adjusted all-items index was the fastest rate of growth since January 2006. It reflects mainly the increase of gasoline prices."
6/19	8:30am	Wholesale Sales	1.4%	0.8%	0.7% 0.6%
		for April Provided by StatCan
6/20	8:30am	Retail Sales	0.6%	0.6%	0.0% 0.1%
		Monthly Rate for April Official Release: Statistics Canada Retail Sales y/y 4.2%, pr. 4.6% Retail Sales excl. Autos y/y 5.8%, pr. 4.8% Retail sales returned to the positive trend after 2 months of declines, and is now up for 5 of the past 7 months. Surging prices helped gasoline sales increase 1.9% on the month. Furniture, home furnishings and electronics stores were up 1.6%. Food and beverages also rose 0.4%. Clothing and accessories sales rose 2.8%. 6 of the 8 sectors, and all provinces and territories saw positive numbers.
6/20	8:30am	Retail Sales excl. Autos	1.1%	0.5%	0.1% 0.0%
		For April See Canadian "Retail Sales"
6/27	8:30am	Producer Price Index m/m	0.6%	1.1%	1.6% 1.4%
		Industrial Product Price Index (IPPI) for May Provided by: Statistics Canada Official Release: Press Release PPI y/y: 2.4%, pr. 1.0% (Apr), -0.2% (Mar) RMPI m/m: 3.1%, forecast 5.1%, pr. 5.1% (Apr), 6.7% (Mar) From the Release: " Petroleum prices increased substantially for a third consecutive month in May, driving up the indexes for manufactured goods and raw materials prices. However, if energy products were excluded, the price movement for both those indexes would have been negative. From April to May, prices charged by manufacturers, as measured by the Industrial Product Price Index (IPPI), rose 0.6%, down from the 1.6% increase in April. May's increase was almost entirely attributable to petroleum and coal products, which continued their upward climb with an increase of 8.2%, similar to the rate recorded in the previous two months. Prices for other IPPI products, with the exception of energy, declined 0.5%, their first decrease after five straight monthly increases. Among non-energy products, 13 major groups out of a total of 20 posted declines, led by primary metal products as well as motor vehicles and other transport equipment. On a 12-month-basis, the IPPI rose 2.4%, up from the 1.4% rise recorded in April. The strong increase in prices for petroleum and coal products was partly offset by decreases in the prices for primary metal products as well as motor vehicles and other transport equipment. If energy products were excluded, the IPPI would have fallen 1.7%, a much lower decrease than the declines of the previous three months."
6/27	8:30am	Raw Materials Price Index	3.1%	5.1%	5.1%
6/30	8:30am	Gross Domestic Product	0.4%	0.3%	-0.2%
		For the month of April Provided by: Statistics Canada Currenct: Press Release From the release: Real gross domestic product (GDP) rebounded in April, increasing by 0.4% after declines in February and March. There were increases in manufacturing, wholesale and retail trade as well as the financial sector, and declines in construction, oil and gas extraction and exploration. During the first quarter of 2008, GDP of the manufacturing, retail and wholesale trade industries were affected by some temporary setbacks in the motor vehicle industry and inclement weather. The economy rebounded after a sluggish first quarter that was partially due to poor weather, which affected manufacturing. Manufacturing grew 1.9% in April, partially offsetting previous declines. Motor vehicle sales also came back strong, increasing 7.0% in April. The energy sector however saw a decline of 1.1% in April, and construction declined 0.7%.

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Central Bank Watch - Latest Bank of Canada Decision

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July
15th, 2008

Actual

Forecast

Revised Form

3.0%

N/A

Provided by: Bank of Canada
Statement: Press Release

The Canadian Dollar reached parity against the US Dollar prior to its meeting. In its statement, part of which is reporduced below, the bank said it judges that its current level of 3% is "appropriate." Consumer inflation will continue to have upside risks as commodity prices continue to increase, but core inflation should remain "broadly in line with expectations."

From the Release: "Three major developments are affecting the Canadian economy: the protracted weakness in the U.S. economy; ongoing turbulence in global financial markets; and sharp increases in many commodity prices. The first two developments are evolving roughly in line with expectations in the April Monetary Policy Report. However, commodity prices are continuing to outstrip earlier expectations. This has led to further increases in Canada's terms of trade and real national income, and has altered the outlook for global and domestic inflation.

Total CPI inflation over the next year is expected to be much higher than projected at the time of the April Report. Assuming energy prices follow current futures prices over the projection period, total CPI inflation is projected to rise temporarily above 4 per cent, peaking in the first quarter of 2009. As energy prices stabilize and with medium-term inflation expectations remaining well anchored, total inflation is then projected to converge to the core rate of inflation at the 2 per cent target in the second half of 2009. Core inflation is projected to remain well contained and broadly in line with earlier expectations, averaging close to 1.5 per cent through the third quarter of this year and then rising to 2 per cent in the second half of 2009.

The three major developments affecting the Canadian economy pose significant upside and downside risks to the Bank's base-case projection. Weighing the implications of these, the Bank views the risks to its base-case projection for inflation as balanced. Against this backdrop, the Bank judges that the current level of the target for the overnight rate remains appropriate."

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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.

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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).