The Canadian dollar rose the most since November yesterday after the bank's statement. The currency, which has gained 24 percent over the past year, was worth more than its U.S. counterpart on April 6 for the first time since July 2008.

"There are inherent limits to how far the Bank of Canada can raise rates beyond those in the U.S., but I don't see a problem with Bank of Canada raising rates 1.25-1.5 points beyond what the Fed does," said Craig Alexander, deputy chief economist at TD Bank Financial Group in Toronto.

"A strong dollar is going to be a challenge for exports, but the domestic economy can still support moderate growth,"
Alexander said.

Canada's economy will grow at the fastest pace in the G-7 this year, according to economists surveyed by Bloomberg News. Finance Minister Jim Flaherty has said companies are better able to handle a stronger Canadian dollar and changes in global demand, and said the economy has benefited from a financial system where no banks failed or sought a bailout.

"The world has just been through the most serious credit crisis in at least a generation," Flaherty said yesterday in the federal legislature. "Fortunately, in this country we have a very sound banking system."

Eoin Treacy's view Canada's yield curve spread began to contract from early March, joining countries such as Australia, India and China and acted as a signal that the normalisation of policy was beginning. (Also see Comment of the Day on March 4th). Short-term Interest rates at 0.25% are the lowest on record and will still be historically low by the time they rise to 2%, which had been a floor since at least 2002.

Canada's economy remains considerably intertwined with the USA's. A gap appears to be widening between the manufacturing focus of the East versus the reliance on the resources sector of the West. This story from Yahoo News on the 16th indicates that manufacturing growth continues to come in below expectations while today's impressive earnings by Encana and Teck Resources highlight that sector's resurgence.

The Bank of Canada could have a tricky job ahead of it in fostering the high employment manufacturing sector while tempering potential overheating in resources and housing. This trade-off could have an impact on the extent to which the country can allow interest rates to diverge from the USA because of the effect they might have on the Canadian Dollar.

The US Dollar extended its downtrend against the Loonie by breaking below parity yesterday and would need to sustain a move above $1.025 to question potential for additional downside. An advance above the declining 200-day MA, currently near $1.06, would be required to check the consistency of the medium-term downtrend.

The S&P/TSX Composite Index continues to consolidate in the region of the January high near 12,000 and a sustained move below 11,400 would be required to question potential for further higher to lateral ranging. The S&P/TSX Financial Index is outperforming the wider market and broke upwards in March. While it is somewhat overextended relative to the 200-day moving average, a sustained move below 1525 would be required to begin to question the consistency of the overall uptrend.

The S&P/TSX Venture Index, which is dominated by smaller resources companies, continues to trend consistently higher and broke upwards to new recovery highs earlier this month. A sustained move back below 1500 would be required to begin to question the consistency of the medium-term advance.

The S&P/TSX Global Gold Index failed to sustain the break to new highs in December and pulled back into the previous range, where it remains. It needs to sustain a rally above 350 to indicate demand has returned to dominance.

The S&P/TSX Capped Income Trust Index yields more than 7% and remains in a consistent medium-term uptrend. A break in the progression of rising reaction lows would be required to question the consistency of the overall advance. While the number of income trusts is diminishing as companies change their status for tax purposes, Canada continues to have a significant number of attractive, sound dividend paying companies and trusts. The Sterling denominated Middlefield Canadian Income Trusts trust pays dividends quarterly, yields 6.5% and trades at a discount to NAV of 7.8%. It has a similar pattern to the Index but has perhaps lost momentum somewhat of late. Nevertheless, a sustained move below 70 would be requied to question the consistency of the medium-term uptrend.,


Bulks- Major producers of bulk commodities such as BHP Billiton, Rio Tinto, CVRD and Xstrata among others have been some of the better absolute performers over the last year. This is particularly the case for BHP Billiton which is alone among the major cap miners to have moved to a new all time high. However, all of these shares are somewhat overextended relative to their 200-day moving averages and have at least lost upside momentum in the short term. Some further reversion towards the mean appears likely over the coming weeks and even sustained moves to new recovery highs would only increase the potential for such consolidation.

In the meantime, shipping companies have been laggards through the recovery period for the global economy and those with a pure focus on the shipping remain in base formations. However, companies that also offer logistics, warehousing and other services as well as shipping are outperforming.

Maersk remains a leader and broke upwards from the most recent range last week, reasserting the medium-term uptrend. A downward dynamic would be required to check potential for further upside beyond a brief pause.

D/S Norden has posted a progression of higher reaction lows since late 2008 and is now testing the upper side of the base near DKK260. A sustained move below DKK230 would be required to question potential for a successful upside break.

Neptune Orient Lines successfully broke above SGD$2 earlier this month and would need to sustain a move below SGD$1.90 to question potential for further upside.

Oil tanker companies are also showing signs of increased investor interest. The largest, Mitsui Osk Lines, has been trending consistently higher since December and is now testing the upper side of its base. A sustained move below ¥650 would be required to check potential for additional upside.

Nippon Yusen Kabushiki Kaisha didn't bottom till last December, but has now posted a succession of higher reaction lows and higher rally highs. It has also broken the medium-term downtrend and sustained a move above the 200-day MA this month. A fall back below ¥350 would probably indicate that an extension of the base formation is set to take place at somewhat lower levels but in the absence of such a move, the upside can probably be given the benefit of the doubt.

Frontline broke upwards from its base three-weeks ago and a downward dynamic would be required to check momentum beyond a brief pause.

Teekay Shipping has been consolidating, mostly above $20, in a first step above the base and is now testing the upper side of the range. A downward dynamic would be required to limit scope for a successful upward break.