Canada Update

The Canadian dollar has completely recouped the pre-weekend slippage recorded on the back of disappointing jobs data.

Today's economic data have been mixed, with a slightly weaker than expected March housing starts data, but a relatively healthy business outlook survey and comments from Fin Min Flaherty that seemed to welcome the recent rise of the Canadian dollar. Flaherty noted that the Canadian dollar's appreciation has been orders and reflecting fundamentals.

Left unsaid, is the point BOC Governor Carney made recently that the Canadian dollar's exchange rate is a understood through the "prism" of inflation. With core prices rising more than the BOC expected ,a firmer C$ is not as problematic as it was deflation seemed a bigger threat.

While portfolio investment into Canadian bonds and stock market has been reported, direct investment inflows are expected to moderate. However, one of the factors underpinning the C$ is the expectation that China' Petroleum and Chemical Corp (Sinopec) will shortly announce plans to buy ConocoPhillips stake in a Canadian oil sand producer. Some industry estimates value the potential transaction near $4.65 bln.

Still the Canadian dollar is appears to be getting sticky near parity. Talk suggests that Canadian corporates are locking in rates. It probably takes the US dollar to push through CAD0.9950 to be noteworthy at this juncture. On the top side, CAD1.0080-CAD1.01 offers the first level of resistance.