The Global Currency Investor A Quarterly Analysis of 50 World ...

Jan 09Jul 09Jan 10Jul 10Jan 11Jul 11Jan 05Sep 05May 06Jan 07Sep 07May 08Jan 09Sep 09May 10Jan 11COUNTRY REPORT: CanadaOutlook: NeutralS&P Moody's Rates Policy 3m 5y 10y[30-Sep-2011]Rating (LC) AAA Stable Aaa Stable1.00% 1.20% 1.40% 2.16%Economy and Market OutlookThe economic recovery in Canada has now been thrown into turmoil by the problems rocking theUS. Markets have already now shifted towards speculation that the Bank of Canada will be forcedto quickly cut interest rates to support growth and central bank comments have turned significantlymore cautious in recent weeks reinforcing the change in sentiment. Despite this huge change inoutlook economic data suggests that GDP data is rebounding and growth is expected to be inexcess of 2% annualised in Q3. Inflation data has been stronger than expected with headlineinflation accelerating to a 3.1% y/y rate in August and core accelerating to 1.9% y/y. If global growthdoes weaken then inflation should start to moderate in coming months, but if sentiment turns out tobe overdone then the Bank of Canada could be taking a risk with inflation if they act pre-emptively.Given that interest rates are already very low by historical standards the most likely scenario thusappears that the central bank will maintain interest rates at current levels for a period of time whilstthey wait for more clarity. They will be especially concerned that a cut could reignite house pricesand see consumer debt picking up once again. Political concerns have reduced following theelection of a majority government in recent elections. The currency has benefited from the generalrally in commodity related currencies and the general weakness in the US dollar but has then fallenduring the recent global volatility. There is limited upside to the Canadian dollar from current levelsbutthe strengthening economy should also provide some downside support.1.41.31.21.11.00.90.80.70.6USD/CADJPY/CAD140130120110100908070609.59.08.58.07.57.06.56.05.55.0Unemployment Rate %2010 2011 (f) 2012 (f)Real Growth (%) 3.2 2.1 1.9CPI (%)* 2.2 2.6 2.0Current account (% GDP) -3.1 -3.3 -3.8Fiscal balance (% GDP) -5.6 -4.3 -3.9Government Debt (% GDP) 32.2 34.9 36.8Daily volumesPoliticsPrime Minister: Stephen Harper.Election: 2015The May election returned StephenHarper's Conservative Party but as amajority government. This resolves years ofpolitical instability in Canada. Majorchanges are not expected however with theparty expected to continue its relatively slowpace of policy implementation.FX Reserves*End of YearUSD49.86bnSource: IMF, S&P, Bloomberg49Confidential – not for redistribution. This material must be read in in conjunction with the “Important Information” statement provided on the last herein. page.