The Canadian Dollar, Housing Starts, and Retail Sales Up

Good news for Canadians! Seasonally adjusted housing starts are up 19.6% for September over August. Multiple starts account for the bulk of the increase with urban starts up 22.9%. Urban starts were up in all five regions of the country. But that's not all. Canadian retail sales were up 4.3% for the month of August over August of 2006 according to CMHC. That equates to a 0.7% rise for this August rather than the 0.5% rise predicted by Bay Street. This likely reflects the 8% increase in income growth reported so far. Both the number of jobs and the job quality index have risen to the highest levels in 2 years.

Greg Anderson, director of foreign exchange for the Netherlands’ ABN Ambro bank in Chicago believes the increases in Canadian dollar prices can be credited to the recovery of gold, oil, and copper prices. Canadian dollar increases against US currency were around 11.88%, 5.52% against the Euro, and 8.80% against the British Pound. Bank of Canada Governor David Dodge believes much of the increase is due to market speculation, stating that though terms of trade have improved over the last three months the improvement was not sufficient to justify the increase.

Finance Minister Jim Flaherty seems to agree but has recommended that retail prices of consumer goods be rolled back to US prices to reflect the relative currency values between US and Canadian dollars. This will help stock turnover, eliminating stores of old stock. Some major retailers, like Wal-Mart and Zellers have already begun to adjust prices.

Dennis Gartman, a writer for a US investment newsletter, commented that the Bank of Canada is not likely to respond to comments from Dodge and Flaherty with lower rates. Sal Guatieri, economist for BMO Nesbitt Burns (wealth management division of Bank of Montreal) speculated that if downside risk is supported by data, a rate cut may appear early next year.