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International Investors Favor Canadian Bonds Over Equities, Capping Loonie Gains, BMO Says

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International capital inflows into Canada have surged since early 2025, but their composition offers limited support for the Canadian dollar, according to BMO Capital Markets in a note.

However, the record portfolio inflows have been concentrated largely in bonds rather than equities, wrote BMO in Wednesday's note.

Recent international investment was concentrated in Canadian bonds, with limited equity inflows. Nearly half of record net bond purchases over the past year were in non-loonie-denominated bonds, reducing support for the Canadian dollar, said the bank.

"That's one reason the large inflow hasn't done much to support the currency," wrote BMO Chief Economist Douglas Porter in the note.

That said, the broader investment backdrop has improved, with net foreign direct investment (FDI) flows turning slightly positive since early 2025.

"That's rare," added Porter.

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