High Loonie Good & Bad

Canada posted a record current account deficit in the third quarter, bringing into sharper focus the detriment — and the benefit — of an inflated loonie to the country’s trade performance.

The shortfall in the broadest measure of trade rose to $17.5-billion, a new low-water mark on an absolute basis. A record deficit in the goods merchandise trade balance of $6.5-billion was the driving factor, pushing the Canadian economy deeper into net debtor status.

“The loonie’s wingprints were all over this morning’s current account data for Canada,” Krishen Rangasamy, an economist at CIBC World Markets said in a note. “But exports also didn’t perform despite the recovery underway, clearly hampered by a loonie that has, over the years, aided the erosion of our market share in the U.S.”

But as an indicator of overall economic prospects, the current account balance is a double-edged sword. While every country aims to be a net seller to the rest of the world, Canadian companies appear to be taking the opportunity to invest in machinery and equipment imports.

The value of imported goods rose for the fifth straight quarter, up $3.6-billion, an increase mostly due to rising investment in machinery and equipment.