Today the Canadian dollar continues to tumble, now down 16% from its QE-driven rebound peak in July 2011. At the same time, the Canadian stock market has officially delivered its first 10% ‘correction’ in 3 years. Foreigners who flooded into Canadian assets in search of relative fiscal strength following the 2008 recession, are not enjoying the mean reversion as their capital continues to fall. A migration toward the exits from Canada and other commodity-centric nations like Australia and New Zealand seems likely to continue this cycle. In fact we see many reasons to suggest that deflationary trends may be just getting started.
North American bonds seem to agree. As shown in this updated chart of the US 10-year Treasury yield, those believing that lax monetary policy would jump-start global growth and inflation seem to be losing the argument with those who have said paralyzing debt levels, aging demographics and commodity over-investment the past few years would lead to weak demand and asset deflation.