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Friday, February 24, 2006

The Canadian dollar could rise on a strong updraft of economic news Monday morning, economists said.

Statistics Canada is set to release current account data for the fourth quarter at 8.30 a.m. and economists are forecasting the numbers will show the nation had a record surplus with the rest of the world for the last three months of 2005.

The “stunning report” will reveal a surplus of $12.9-billion, more than double the year-earlier figure of $5.3-billion, Carl Weinberg, chief economist for High Frequency Economics Ltd. of Valhalla, NY, said in a commentary under the headline, “A whopper, with all the fixings.”

The average forecast from economists is just under $12-billion, Mr. Weinberg said. “Nevertheless, traders may not have wrapped their heads around the fact that a really, really, really big number is going to print at 8.30 EST on Monday,” he added. “If people are caught by surprise, we should see the loonie fly high on Monday morning.”

The dollar was settled at 87.05 cents (U.S.) Friday, up 0.30 of a cent from the previous day's close of 86.75 cents but still down from its Jan. 31 high of 87.80 cents. It has averaged 83.43 cents over the past year, having risen from a low of 78.78 cents last May.

Mr. Weinberg said the key reason for the anticipated record current account surplus is the massive $21.6-billion fourth-quarter trade surplus. “The reason for this blow-out is simple: energy exports are rising through the roof, on both elevated prices and increased production. This is the oil windfall and the natural gas bonanza being played out with a vengeance.”

Royal Bank of Canada assistant chief economist John Anania also thinks the loonie could take flight again both as a result of the current account news and also the release Tuesday of the December and fourth quarter figures for economic growth.

“Should our forecast for the current account surplus and real [gross domestic product] growth materialize, the Canadian dollar would find some support, while bond yields would face upside pressure,” he said in a note.

Royal Bank is forecasting “some upside potential” to consensus GDP growth forecast of 0.3 per cent for December and 2.6 per cent for the quarter, he said. But he does not expect the current account surplus to quite reach the consensus forecast, which he pegs at $12.4-billion rather than the just under $12-billion figure cited by Mr. Weinberg.

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