INVESTICA Ltd ^{The currency specialists}

The Canadian economic data has continued to indicate a slowdown in growth with particular concerns over the manufacturing sector as shipments have continued to fall. The employment data has been firm, however, which suggests that the economy is still proving to be resilient.

The recent inflation indicators have been favourable with the core rate holding below the 2.0% level and the January rate fell to a 2-year low of 1.4%. The combination of favourable inflation data and evidence of weaker growth will encourage the Bank of Canada to cut interest rates again from 4.00% at present. The central bank will not be aggressive unless the economy deteriorates rapidly, especially as underlying inflation fears will continue.

The Canadian trade surplus has moved lower as the export sector has weakened and competitiveness fears will persist. There will also be increased fears over the impact of recession conditions within the US economy. Commodity prices are also liable to weaken, although the overall fundamentals will remain strong. Overall, the Canadian dollar is unlikely to weaken sharply, but it will be difficult to sustain gains beyond parity.

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