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The Bank of Canada interest rate cuts were designed to weaken the loonie to spur exports. Perhaps more importantly, export strength was to lead to capacity constraints that would require business investment in expansion, and new jobs.

It's not turning out that way, at least so far. Statistics Canada's report on the domestic trade deficit issued Monday did, on one hand, show the welcome increase in investment by Canadian firms is happening, but it also showed that the money is being spent abroad. National Bank economist Krishen Rangasamy observed that the big problem with the larger-than-expected trade deficit was the way it's being financed.

"The preferred source of financing, i.e. Foreign Direct Investment (because it is stable and long term), was negative for a third consecutive quarter, i.e. net direct investment by foreigners were more than offset by massive outflows by Canadian corporations whose direct investment abroad hit nearly $37-billion, the highest on record."

The chart below shows the accelerating growth in Canadian investment abroad. From the beginning of 2014, Canadian companies have increased foreign investment by a cumulative 51.4 per cent, almost three times the growth in foreign investment into Canada.

The value of the Canadian dollar is plotted on the chart to highlight a change in trend that occurred in late 2013. Before that point, Canadian investment outside of the country roughly tracked the loonie. Canadian CEOs took advantage of the strong currency and its greater spending power abroad and prudently invested in foreign assets.

The last 20 months, however, has seen foreign investment continue to climb despite the weakening loonie. In addition, Bloomberg notes that "more than half of Canadian direct investment abroad in the second quarter was in the manufacturing industry." The probability of a successful export-led manufacturing recovery clearly declines if such a major share of corporate investment in manufacturing continues to happen outside of our border.

The Canadian auto sector was expected to be among the primary beneficiaries of the weak Canadian dollar. But the largest public Canadian owned auto parts company, Magna International Inc., has been forced to follow the world's largest automakers and invest heavily into Mexico. Magna now operates 30 factories in the country according to a recent Globe and Mail report and generates more than 80 per cent of its revenue outside of Canada.

The export and investment trends are not yet in Canada's favour but there are compelling reasons for hope. The weakness in the loonie has only occurred in the last year – not long enough to affect investment strategy plans for global corporations. Many CEOs are only now including Canada in the decision-making process regarding destinations for future expansion.

More importantly, the influential 2015 A.T. Kearney Foreign Direct Investment Confidence Index was just released, and it placed Canada as the fourth most attractive market for global investors, behind only the United States, China and the United Kingdom. The official website for the World Economic Forum adds that "the rankings and the global FDI flows have matched, and countries ranked in the Index have received half of the global FDI inflows the following year, according to the consulting firm."

Follow Scott Barlow on Twitter @SBarlow_ROB.

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