The stronger dollar led foreign investors to buy Canadian stocks in September, according to the latest data from Statistics Canada.

StatsCan says foreign investors acquired another $2.1 billion of Canadian stock in September to bring the total for the third quarter to $5.3 billion. This follows purchases of $2.6 billion worth in the second quarter.

The enthusiasm for Canadian stocks was tempered by a $657 million outflow from bonds in September; and, a $1.2 billion slide in money market paper.

“The small net investment made only a minor dent in the $10.4 billion of Canadian securities that were sold over the prior three months,” says BMO Nesbitt Burns. “Earlier this year, wide yield spreads and a rising loonie led to a flood of foreign interest in Canadian dollar-denominated bonds. That trend has been in reverse for the last four months, as spreads narrowed and the upswing in the Canadian dollar stalled.” Nesbitt says that the bulk of the reversal was in federal and provincial debt.

At the same time, Canadians were net sellers of $2.9 billion of foreign stocks and bonds in September.

Canadian investment in foreign bonds fell $2.7 billion in September, with U.S. treasury bonds taking the largest hit. This decline, the first in eight months, follows an accumulation of $8.9 billion in foreign bonds since January.

Canadian investors also reduced their holdings of foreign stocks by $177 million, after acquiring $3.9 billion worth over the previous four months.

“The pullback in foreign bonds comes after eight months during which $8.9 billion in foreign bonds were picked up. The slight sell-off of foreign stocks occurred as equity markets cooled off in September after a solid performance since March,” says Nesbitt.

“The resumption of inward investment during September, both by foreign and domestic investors, is largely due to the renewed appreciation of the Canadian dollar, particularly during September (almost 2 full cents), as well as the improved growth outlook in Canada as the economy shook off the shocks from the summer months,” RBC concludes.