Foreigners invested $11.8 billion in Canadian securities in January, with debt instruments continuing to attract the bulk of non-resident demand.

Foreign demand for Canadian securities is one of many factors in the Canadian dollar's sudden rise. (iStock photos)

In contrast, Statistics Canada reports Canadians removed $5.8 billion from their holdings of foreign securities in January, the largest reduction since December 2008.

Foreigners bought a robust $10 billion worth of Canadian bonds in January. Federal government bonds made up two-thirds of that, while Canadian corporate bonds made up the balance.

Equities were less popular, as non-residents sold off $649 million of Canadian stocks in January. It was the second time in the last 12 months that sales of stocks outweighed purchases in that category. Canadian stock prices fell by an average of 5.5 per cent in January.

The seemingly insatiable appetite for all things Canadian is playing a role in the loonie's surge of late, BMO economist Doug Porter said Thursday.

"This brings the 12-month running total net inflow to a towering $111 billion, by far and away a record," he said in a note to clients. To put that in perspective, $111 billion is more than seven per cent of Canadian GDP, and is more than all the federal and provincial deficits in Canada combined for this year.

Foreigners are pouring money into Canadian investments, especially government bonds, and that is fuelling the loonie, which currently trades at a 20-month high of 99 cents US. Except for a few recent issues of euro- and U.S. dollar-denominated bonds from Ottawa, when foreigners want to buy Canadian government bonds, they must purchase loonies, which props up demand.

At the same time, Canadians are also keeping their money close to home, further fuelling the Canadian dollar's strength.

Canadian investors sold $5.6-billion worth of foreign bonds in January, the largest divestment since October 2008, the height of the financial crisis.

The remainder of the divestment activity in January was in non-U.S. foreign bonds as Canadian investors removed $1.9 billion from their holdings.

After a brief pause in December 2009, Canadians further reduced their exposure to foreign stocks in January, removing $647 million from their holdings.

"It’s extremely rare to have foreigners piling into Canada, while Canadians are also piling into Canada," Porter noted.

Canadians added $373-million worth of foreign money market paper to their portfolios in January, all U.S. government paper.