Canada Today

The Canadian dollar has been no match for its US counterpart and has declined by about 1% against the greenback thus far this year. However, it has held up better than the other major currencies, except the Japanese yen. This seems rather typical of the Canadian dollar's performance in a strong US dollar environment. Ahead of the G7 meeting and next month's budget presentation (March 4), Canada's FM Flaherty acknowledged that the economists it surveys revised up growth forecasts to 2.6% this year (from 2.3% estimate last Sept) and expect unemployment to fall to 8.5% (from its previous estimate of 9%.) Although the Conservatives are a minority government, Flaherty appears to have broad support to keep the focus on recovery rather than fiscal consolidation. Canada's debt to GDP is the lowest among the major industrialized economies, which gives it greater policy flexibility. Today, Canada reports Dec building permits and the IVEY Purchasing Manager Index. Both reports are expected to show improvement from the previous readings. Building permits are expected to have risen 2.5% after falling 4.6% in Nov. Assuming the consensus is close to the mark, Q4 09 will be the strongest quarter for permits since Q4 05. The IVEY PMI peaked in Sept and has been trending down in recent months to fall below the 50 boom/bust level in Dec. It is expected to have reversed the decline and moved back above 50 in Jan. That said, these reports pale in significance compared with tomorrow's jobs report. With a single exception since May 09, Canada's job creation has been saw-tooth, alternating months between gaining and losing jobs. That said, the 3-month average has been positive since last Aug. The consensus is looking for around a 15k gain in jobs after a 2.6k loss in Dec. The unemployment rate appears to have peaked in Aug at 8.7%, but is expected to remain near the 8.4% that prevailed in Q4 09. The US dollar peaked near CAD1.0720, which corresponds to the upper end of the range over the past few months. A break of the CAD1.0530 area is needed to help confirm that this is indeed the near-term high.