Canada's external imbalance worsens

Canada's sizeable deficit is a lingering issue that has underpinned the bearishness on CAD ever since the imbalance became decreasingly funded by "long-term" capital flows-such as bonds-in recent years. 
One of the many impacts of the drop in oil prices is that the current account imbalance has expanded considerably, and the latest data for Q1 showed a deficit of $17bn-the second worst on record, notes RBC Capital Markets.

April trade data (also the second worst trade deficit ever) does not bode well for a near-term recovery in the current account, but gradual narrowing of the imbalance over the next two years is anticipated (to less than 1.0% of GDP by the end of 2016), states RBC Capital Markets.

Until that happens, though, the larger deficit is left to be funded. The surge in bond demand through Q1 has been substantial and even enough to bring the basic balance close to neutral (using long-term capital).