A weakening commodity market isn’t the only headwind blowing against the Canadian dollar. Foreign investors’ interest in Canada has been fading fast, too.
The latest numbers on international securities transactions from Statistics Canada, published Tuesday, show that foreigners pulled a net $6.3-billion out of Canadian securities in February.
The selling was mostly centred in equities, which saw a net outflow of a massive $11.6-billion, the biggest one-month foreign exodus since October, 2007. This, despite the fact Canadian stock prices actually rose 1.1 per cent in the month.
Foreigners also unwound a net $2.8-billion in short-term money-market instruments. Bonds on the other hand, saw net buying of $8-billion.
February marked the second time in the past three months that more foreign money has flowed out of Canadian securities than into them – something that has happened only twice since the 2008-2009 financial crisis.
For most of the time since the crisis, steady and strong foreign inflows into Canadian securities – both for their relative stability and safety and for Canada’s relatively healthy economy – have been a major source of strength for the Canadian dollar.
But over the past three months, the average monthly inflow of foreign investments has been a thin $2-billion. Compare that with the prior three months ($11.3-billion), or the same three-month period a year earlier ($5.6-billion).
It’s evident that the momentum in foreign buying has faded markedly, to say the least.
Granted, February ended nearly seven weeks ago – practically ancient history for financial markets.
Still, the factors that were weighing on the Canadian dollar at that time – tepid economic growth, fading commodity prices – haven’t changed in the interim. If foreign investors were unwinding their long-term Canada bet two months ago, there’s little reason for them to have changed course.
Perhaps, then, there’s some relief in sight for the country’s export-intensive manufacturing sector, which generally benefits from a weaker currency because it makes Canadian exports less expensive for foreign buyers.
Indeed, a separate report from Statistics Canada Tuesday showed that a nice bounce in manufacturing sales coincided with February’s pullback in the currency. Manufacturing sales jumped 2.6 per cent in February, the largest monthly rise since July, 2011. The gain was led by the auto-assembly segment centred in Ontario, which surged 13.5 per cent.