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Individuals are following suit. While international appetite for Canadian financial securities has held steady this year, domestic mutual-fund investors have pulled money from Canada-focused funds and plowed it into global choices for six straight months, the longest streak in two years, according to Investment Funds Institute of Canada data compiled by Bank of Montreal.

Loonie Implication

What it all means is the Canadian dollar has to get cheaper to make Canadian businesses outside of the oil industry competitive enough with foreign peers to make them worth investing in, according to Benjamin Reitzes, an economist at Bank of Montreal.

The median forecast among strategists surveyed by Bloomberg has the loonie weakening to $1.34 per U.S. dollar by the first three months of next year from about $1.31 now. The country’s economy is expected to lag behind the U.S., its largest trading partner, for the next two years, according to the median estimate of a separate Bloomberg poll.

While manufacturing and service exports have improved thanks to the Canadian dollar’s depreciation, they remain below levels from before the financial crisis, according to Royal Bank of Canada foreign-exchange strategist Elsa Lignos. That suggests the country still hasn’t won back the economic capacity it lost, she wrote in an Oct. 29 note.

The country is expected to post its 12th straight merchandise trade deficit this week, according to every economist in a Bloomberg survey.

Given that the loonie was at parity with the U.S. dollar as recently as 2013, overseas companies discussing putting money into Canada may be waiting to see that the currency stays weak before investing again, according to BMO’s Reitzes.

“Maybe a year from now you don’t have that conversation because it’s been there for a year and you have confidence it’s going to stay there, so you buy that plant or make a new plant in Canada,” he said. “It takes time for that currency impact to be felt.”

Bloomberg.com