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Canadian dollars fall through the air in a photo illustration in Vancouver, B.C. Thursday, Sept. 22, 2011.JONATHAN HAYWARD/The Canadian Press

Worried Canada's 94 cent (U.S.) dollar may still be overvalued?

Look no further than the current account deficit, the broadest measure of trade and financial flows in and out of the country.

The deficit shrunk a bit in the third quarter – to $15.5 billion from $15.9-billion, Statistics Canada reported Thursday.

But economists say the size of the gap remains high, at roughly 3.3 per cent of gross domestic product. That means Canada must depend on a steady inflow of investment income to cover the gap, and those flows risk moving in the other direction at any time.

"The bulk of those inflows are coming in the form of easily-reversible portfolio investments, which leaves the Canadian dollar vulnerable, particularly if there is a negative turn in sentiment by foreign investors," National Bank of Canada economist Krishen Rangasamy pointed out in a research note.

Foreign investment is Canadian stocks and bonds rose to $16.5-billion in the third quarter, the highest level in a year.

The "strong appetite" for Canadian securities suggests that, for now, the country remains appealing to foreign investors, according to Toronto-Dominion Bank economist Jonathan Bendiner.

But he cautioned that the mood could change when the U.S. Federal Reserve begins scaling back its bond purchase program – so-called quantitative easing - early next year. That is expected to draw capital flows back to the United States as investors seek out higher interest rates.

"These concerns will likely re-emerge next year," Mr. Bendiner said.

Meanwhile, weak exports and a significant travel deficit are all pointing to a Canadian dollar that may be overvalued.

"The fact that a lot of people are travelling to the U.S. -- going across the border to shop -- is indicative of a currency that is probably higher than it should be," said Bank of Montreal economist Robert Kavcic.

He agreed there likely will continue to be "downward pressure" on the Canadian dollar over the next year.

The dollar was at par versus the U.S. currency are recently as February of this year. It was trading Thursday just shy of 94.5 cents (U.S.).

There are early signs the slightly cheaper dollar may finally be helping goods exports, which showed a slight improvement in the third quarter. The trade deficit fell by $300-million to $2.2-billion.

The trade surplus with the United States rose $1.7 billion, pushed higher by exports of energy and automotive products.

Exports to the rest of the world fell $1.2-billion, pushing the deficit to $14.5 billion in the third quarter.

Canada's trade deficit has been a major drain on economic growth in recent months.

Figures for third quarter GDP are due out Friday. A smaller trade deficit could point to better than expected GDP growth.

The Bank of Canada has forecast annualized growth of 1.8 per cent in the three months ending in September. But many private sector economists are expecting growth to come in a full percentage-point better at 2.8 per cent.

That compares to growth of 1.7 per cent in the second quarter and 2.2 per cent in the first quarter.

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