CIBC Deputy Chief Economist Benjamin Tal is calling on the country’s central bank to stand up for Canada as a “short sentiment” has developed among global investors.

“Somebody has to stand for Canada. And that somebody must be the central bank,” Tal said in a note to clients Monday. “The Bank of Canada is the face and the voice of the economy.”

Tal’s call to action comes with a warning that a “short Canada sentiment” is on the rise with the loonie under attack.

“We’ve spent hours over the past few weeks talking to bloodthirsty global investors that are largely influenced by Trump’s tweets on NAFTA and the Home Capital saga,” he said.

The loonie hit its lowest level in 14 months last week and it was trading at 72.9 cents U.S. cents Monday as of 12:30 p.m. ET.  

Tal emphasized that the Canadian economy is still robust, referencing recent job growth and strong manufacturing activity.

Royce Mendes, senior economist at CIBC capital markets, said it’s up to the Bank of Canada to convey that message to global investors.

“The turning point will be, I think, a strong Bank of Canada statement,” he told BNN in an interview Monday.  “That’s part of the job of the central bank, is to come out and send messages to investors all over the world about the health and state of the local economy.”


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    Tal emphasized that the Canadian economy is still robust, referencing recent job growth and strong manufacturing activity.

    Investors have been nervous about the ongoing meltdown at Home Capital Corp – Canada’s largest alternative mortgage lender – and what that means for the future of the hot housing markets in Toronto and Vancouver. Tal says the Home Capital situation is “not the ultimate test of Canadian housing.”

    “The situation is contained, and the quality of the assets is solid,” he said. “Any reference to that reality from the Bank will carry a lot of weight.”

    Speaking in Mexico City last week, BoC Governor Stephen Poloz refused to comment directly about the ongoing crisis at Home Capital, but repeated his concerns about the unsustainability of Canada’s hot housing markets.

    Still, a number of analysts have recently observed a so-called ‘Great White Short’ developing in the markets.

    “That’s been a bit of an underlying theme, I think, for many investors outside of Canada for the past few years, this idea of ‘The Great White Short’ trade,” Shaun Osborne, chief FX strategist at Scotiabank, told BNN last week. “We were going to see a replication of the stresses that we saw in the U.S. housing sector and the financial sector and clearly, that hasn’t happened. It’s a much, much differently-structured market here and [that’s] unlikely to occur, I think, in the way we saw in the U.S.”

    Not  everyone is convinced the short Canada trade is without merit. James Thorne, senior portfolio manager and chief capital market strategist at Caldwell Investment Management, told BNN last week he understands the appeal of the “short Canada” trade.  “If I was an institutional international investor why would I invest in Canada?” he said.  “We think people have too much exposure to Canada in their portfolios – they have to start looking elsewhere.”

    Tal blames the Bank of Canada’s dovish tone, focusing “more on the clouds than the sun,” for helping investors form their decision about Canada. He added that the BoC’s next rate decision on May 24 will be a “golden opportunity” to change investors’ perceptions.

    “The ask from the Bank is not to be a cheerleader. A well-crafted statement can balance the need to highlight the risk associated with trade policies, while pointing to the disconnect between global perception of the Canadian economy and reality,” Tal said. “Confidence is the ultimate economic stimulator—not an undervalued currency.” 

    Mendes echoed Tal’s sentiments by saying “confidence is the cheapest form of stimulus.”