The following is a post by Marc Chandler, head of Brown Brother Harriman’s Currency Strategy Team. For more of BBH’s currency views, visit the website here.
Canada reported a somewhat disappointing Q4 09 current account data today, but this is not sufficient to change our preference to buy Canadian dollars on weakness.
The current account shortfall was C$9.8 bln instead of the C$8.5 bln the consensus expected. Adding insult to injury the Q3 deficit, already a record, was revised lower to -C$13.8 bln from -C$13.1 bln. The improvement was slower than the market had expected in Q4 and the external sector may be a drag on Canadian growth in the coming quarters.
But this has already been acknowledged by officials and appears to have been taken on board by the market. And Canadian growth appears to have picked up considerably in Q4. Canada will report Q4 GDP on Monday, March 1. It is likely to be 10-fold better than the 0.4% annualized pace reported in Q3.
In addition, there is some speculation that Canadian officials may soon provide some more guidance on the unwinding of some of its extraordinary liquidity facilities. Such a statement could be seen as early as March 2nd after the Bank of Canada policy meeting (which no one expects any change in policy). The Bank of Canada has already ended two of its three main emergency lending programs. The last one is a term repo facility and officials have committed themselves to ending in late June.
In recent weeks we have recommended being long Canadian dollars against sterling. The bounce earlier this week got our stop, but at current levels we like being long CAD vs the US dollar, but also the Mexican peso.
The opinions expressed are those of the author and not necessarily those of Brown Brothers Harriman & Co., its subsidiaries and affiliates (BBH). This information is not intended as financial advice or an offer or recommendation of any financial products and is subject to change without notice. Recipient agrees that it is solely responsible for any trading or investment decisions that it makes after reviewing this information and that BBH bears no responsibility or liability for such decisions or use of this information.