24 May 2014
Lower Canada relative productivity linked with CAD upside – BTMU
FXStreet (Guatemala) - Strategists at Bank of America Merrill Lynch explained that the productivity growth has long been a concern in Canada, where it has been running lower than that of the US.
Key Quotes:
“The differential has actually widened substantially since the end of the tech boom”.
“From an FX perspective, generally such a negative productivity differential implies longer-term currency weakness”.
“However, the relatively low productivity growth in Canada has been consistent with a stronger CAD (see the Chart of the day, which shows one reduced-form illustration of the link between USD/CAD changes and relative Canadian productivity), despite the usual relationship between weaker productivity and a weaker currency over the longer-term”.
“The persistent relative underperformance of Canadian productivity relative to that in the US is consistent with our own longer-term expectations that broader macro conditions should lead to some further Canadian dollar weakness this year, but with some resumption of strength afterward”.
Key Quotes:
“The differential has actually widened substantially since the end of the tech boom”.
“From an FX perspective, generally such a negative productivity differential implies longer-term currency weakness”.
“However, the relatively low productivity growth in Canada has been consistent with a stronger CAD (see the Chart of the day, which shows one reduced-form illustration of the link between USD/CAD changes and relative Canadian productivity), despite the usual relationship between weaker productivity and a weaker currency over the longer-term”.
“The persistent relative underperformance of Canadian productivity relative to that in the US is consistent with our own longer-term expectations that broader macro conditions should lead to some further Canadian dollar weakness this year, but with some resumption of strength afterward”.