Canada current account gap rises, spurs talk Canada dollar too high

Thu Nov 29, 2012 3:31pm EST
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By David Ljunggren

OTTAWA (Reuters) - A drop in exports helped push Canada's current account deficit close to a record high in the third quarter, a development that some analysts said adds to evidence the Canadian dollar is overvalued.

The deficit rose 2.9 percent from the second quarter to C$18.91 billion ($19.10 billion), Statistics Canada said on Thursday. Though smaller than the C$19.20 billion gap expected by analysts, it was the second largest on record after the C$19.43 billion posted for the third quarter of 2010.

BMO Capital Markets predicted the deficit would end up equaling around 4.1 percent of gross domestic product. Figures for third quarter GDP will be released on Friday.

Citing the big current account deficit and other signs the domestic economy is struggling, BMO issued a report estimating that the Canadian dollar, "the titanium of the currency world", is at least 10 percent stronger than current commodity prices dictate it should be.

The current account data weighed on the currency on Thursday. At 2:16 p.m. (1916 GMT) it was at C$0.9926 against the U.S. dollar, or $1.0075, down from C$0.9915, or $1.0086, before the figures were released.

The overall deficit for trade in goods was C$4.84 billion, up from C$3.64 billion in the second quarter. Exports fell by C$3.73 billion to C$112.75 billion, in part due to lower energy shipments, while imports dropped by C$2.54 billion to C$117.58 billion.

Exporters are struggling with weak foreign markets and the strong Canadian dollar, which erodes the competitiveness of their goods.

"Despite continued foreign investment inflows into the Canadian dollar, trade fundamentals continue to suggest overvaluation," Emanuella Enenajor of CIBC World Markets Economics said in a note to clients.   Continued...