[BillPaay]

BoC Deputy Governor Tim Lane’s first speech is memorable. Not that it broke new ground. Instead it reiterated the BoC’s recent musings including the concern over CAD strength. That is what makes the speech one to remember. Lane clearly links the threat to the recovery posed by the currency and that the BoC retains “considerable flexibility through the use of unconventional monetary policy instruments, including quantitative easing.” Thus, while other central banks are considering exit strategies, and the RBA and Norges Bank seem to setting the stage for tightening campaigns, the BoC seems resolute to leave rates on hold, and continues to dangle the threat of outright quantitative easing. This highlights the BoC’s clear and pressing discomfort with persistent CAD strength.

[BillPaay]

Canada is no longer a current account surplus country. Canada has posted three straight increasingly large current account deficits culminating in 2009 Q2’s reading of C$11.2bn. That is a record high current account deficit, but as a share of GDP, it does not quite measure up to those seen in the late 1980s and early 1990s. However, there has been a key change in the underlying force behind the current account deficit. Between 1985 and 1995, the current account deficit was entirely due to a deep investment income deficit, owing largely to interest payments to foreign holders of Federal debt, in a period of noted fiscal profligacy. At present, the trade and investment income are equal partners. Thus the current account deficit is less structural than in the past.

[BillPaay]

USD/CAD retains a downside technical bias this week after the rejection of resistance at 1.1047 yesterday (note that is the old support trendline that triggered a bearish trend reversal last week – it has now reversed roles and serves as resistance). With the daily studies displaying downward momentum, resistance at 1.1047 and 1.1156 is expected to attract selling interest for test of nearby congestive support at 1.0793. A daily close below this level would sustain bearish sentiment and project additional losses toward the August low at 1.0633.