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Daily Market Commentary

The true story in Canada over the past several weeks has been the unending strength of the CAD$.  This has been happening not only against the standard measure of the US$, but also against all the majors and resource currencies as well.  The resilience of the Canadian economy is mostly to thank (blame?), but the continued sale of our assets puts a real bid under the dollar, and is continually making the deals more and more expensive for their suitors.  As an example, the bid for Lionore was upped yet again by Norilsk, now representing $6.8B CAD$ that has to be bought by the Russian miner.  The consensus being for a stronger CAD$, the sentiment is still not overly bullish (which would precipitate us to look for a pullback).  Every pullback to date has been swift and short-lived.  What is interesting is the lack of news stories claiming the strong dollar is responsible for the death of the manufacturing and export sectors.  Perhaps we've learned to adapt.  One thing is certain, however, with the strong data being released in Canada (like our Leading indicators this morning of +0.4%  vs. US Leading reported last week of -0.5%) our rate gap looks like it will narrow.  This will give more reason to hold more CAD$ in short term rate products.  Don't look for the rally to stop yet.


  Bonds are lower in Canada.... again.  This is based on the same outlook for higher rates in Canada based on persistently strong economic numbers.  Treasuries had a healthy selloff yesterday, proving that support around the 4.75% has clearly broken, and 4.85 - 4.88 is the next area to be tested (see chart pg 3 Daily FI snapshot).


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