International investment position

Second quarter 2006

Note to readers

Canada's net liability to foreign residents increased by $12.5 billion in the second quarter mostly due to valuation changes from a rising Canadian dollar.

The strengthening of the Canadian dollar against the U.S. dollar had a much stronger negative impact on Canada’s international assets than on its international liabilities.

Canada’s net external liability (the difference between its external assets and liabilities) amounted to $148.8 billion at the end of the second quarter. This was 9.2% higher than the revised level of $136.3 billion at the end of the previous quarter, which was the lowest since the end of 1981.

The value of international assets rose $14.8 billion to $1,096.5 billion at the end of June. Net transactions of $47.9 billion that occurred during the quarter were partly offset by the dollar, which removed $28.2 billion from the value of these assets.

At the same time, Canada's international liabilities increased by $27.3 billion to $1,245.3 billion. Net transactions of over $50 billion more than offset the effect of the strengthening dollar which removed $15.1 billion from the position.

Canada's international investment position

Net external liabilities represented 10.4% of Canada's gross domestic product at the end of the second quarter, up from 9.6% in the previous quarter.

The Canadian dollar gained 4.6% against its U.S. counterpart during the quarter, but lost ground against the euro and the pound sterling.

Canada's net international liabilities to GDP

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Assets: Foreign bond holdings rise, Canadian direct investment abroad declines

Canadian holdings of foreign bonds increased significantly during the second quarter, rising nearly 10% to $102.8 billion. These holdings have been substantially up each quarter for the past two years. As a consequence, Canadian investors more than doubled their total assets in foreign bonds since the beginning of 2004.

Holdings of foreign stocks declined slightly to $192.5 billion, down $1.5 billion from the end of March, mostly due to the strengthening Canadian dollar. At the same time, holdings of foreign money market paper decreased by $1.4 billion to $12.7 billion.

The stronger Canadian dollar had a significant impact on the total value of Canadian direct investment abroad, which fell by $3.2 billion to $475.3 billion at the end of June. The exchange rate revaluation removed $14.1 billion from asset values while net transactions accounted for $11.0 billion.

Canadian direct investment in the United States decreased $6.3 billion to $213.2 billion. At the same time, Canadian direct investment in all other countries increased to $262.1 billion. Direct investments in the United States represented about 45% of all direct investments abroad.

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Increase in foreign direct investment in Canada

Foreign direct investment in Canada increased $7.5 billion to $433.8 billion at the end of the second quarter. Of the total, direct investments from the United States amounted to $276.7 billion.

The net direct investment position (the difference between Canadian direct investment abroad and foreign direct investment in Canada) declined to $41.5 billion at the end of June. This was a $10.7 billion reduction from the previous quarter.

Foreign holdings of Canadian stocks increased $3.3 billion to a record $113.6 billion. Foreign investors bought Canadian shares during the quarter even though the S&P/TSX composite index lost over 4% between March and June.

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Substantial decline in foreign holdings of Canadian bonds

Foreign holdings of Canadian bonds reached $369.1 billion at the end of June, down $10.9 billion from the end of March.

Foreign investors reduced their holdings of federal government bonds by $3.5 billion to $43.6 billion. This was the lowest level in almost two decades, as the federal government continued to pay down its external debt.

At the same time, foreign investors also reduced their holdings of provincial government bonds by $2.2 billion to $93.9 billion, the lowest level since the end of 1993.

Foreign investors made significant investments in Canadian money market paper for a third consecutive quarter. As a result, foreign holdings of Canadian money market paper increased $4.1 billion to $27.0 billion.

Finally, Canadian deposit liabilities to non-residents increased $20.3 billion to $235.8 billion.

Portfolio investment position in Canadian bonds

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Statistical table

• International investment position at period-end

Information on methods and data quality available in the Integrated Meta Data Base: 1537.