North American Capital Flows

July 18, 2011

Statistics Canada and the U.S. Treasury Department each released figures on net long-term capital flows today.  Canada continued to enjoy a massive net inflow.  Foreigners bought CAD 15.4 trillion of Canadian securities in May, twice as much as the monthly pace in the first four months of this year.  Net of CAD 3.5 billion of Canadian foreign security purchases, an inflow of CAD 11.934 billion resulted, marginally more than April’s CAD 11.828 billion inflow and 89% greater than the first-quarter monthly pace of CAD 6.326 billion.

The United States reaped a USD 23.6 billion long-term capital inflow in May according to The Treasury’s monthly TIC data.  That was down from USD 30.6 billion in April and a first-quarter monthly pace of USD 35.5 billion.  Two broader aggregated flows also deteriorated in May.  A gauge of long-term flows including swaps fell to $8.0 billion from $18.9 billion in April, and a summary measure that adds in short-term capital produced a $134 billion adverse swing from a $66.6 billion inflow in April to a $67.5 billion net outflow in May.  Bank-reported liabilities accounted for the bulk of the change.

It was fashionable among currency market model-builders in the 1980s to track flows of funds in an effort to predict and monitor currency market developments and pressures.  Alas, the effort was not very fruitful.  The TIC data in particular seem very disconnected from what’s happened in the market.  During May, for example, the dollar rose 2.9% against the euro and 2.5% against the Canadian dollar.  Canadian and U.S. capital flow figures released today imply that the Canadian dollar was very well-bid in the month and that U.S. capital flows were too small to cover the trade deficit.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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