TD Says Canadian Economy has Peaked

It looks like Canada’s surprisingly strong run of economic data is ending, if TD Securities is right, and that means one of the fiercest rallies on record for the Canadian dollar is poised to end as well.

We may have passed “a point of peak optimism” on the Canadian economy, senior foreign-exchange strategist Mazen Issa wrote, after the release Wednesday of trade data for March in which America’s neighbor to the north recorded its biggest monthly deficit on record. Exports tanked, with acute weakness in shipments to the U.S. Canada’s trade surplus with its largest trading partner shrank to levels not seen since before the North American Free Trade Agreement was signed.

“We are reluctant to infer too much from the monthly swings of a highly volatile data set, but today’s international trade report from Canada provides a very strong reminder that investors should remain cautious toward the CAD’s underlying macro backdrop,” Issa wrote in a note to clients.

The Canadian dollar’s wild rally since mid-February hasn’t been wholly a function of rising oil prices. It’s also firmly grounded in the nation’s better-than-expected economic performance. Issa observed that the value of the currency against the greenback has closely tracked the nation’s economic surprise index for the past year.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza