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Canadian dollar cracks 98¢ as world’s ‘most dovish central banker’ stands pat Add to ...

These are stories Report on Business is following Thursday, Sept. 19, 2013.

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Loonie surges
The Canadian has rallied to above the 98-cent (U.S.) level in the wake of the Federal Reserve’s surprise decision to hold the line on its bond-buying stimulus program.

Yesterday’s announcement drove U.S. stocks to record highs and weakened the U.S. dollar, in turn pushing up the Canadian currency.

That’s because the central bank’s asset-purchase scheme, known as quantitative easing or QE, is a policy that weakens the greenback, though the Fed is trying to bolster the recovery and ease unemployment.

The loonie, as Canada’s dollar coin is known, was sitting at 97.05 cents U.S. heading into the Fed announcement yesterday afternoon.

By the time the announcement was done and Fed chairman Ben Bernanke concluded a subsequent news conference, the Canadian dollar was at 97.90 cents, noted chief currency strategist Camilla Sutton of Bank of Nova Scotia.

That continued through to today, putting the loonie comfortably over 98 cents.

“Ben Bernanke had threatened to take away the punchbowl and bring the QE-party to an end,” added Kit Juckes, the chief of foreign exchange at Société Générale, as global markets continued to surge this morning.

“But he's changed his mind, found more happy juice, and told us all to 'Party on, dude!'”

Under QE, the Fed has been buying $85-billion of assets a month, and markets had expected it to announce yesterday that it was cutting back by about $10-billion.

But the Federal Open Market Committee, the central bank’s policy-setting group, said it was prudent to wait, our Washington correspondent Kevin Carmichael reports.

While some indicators of the labour market have improved, the jobless level remains high.

“Ben Bernanke's focus on the drivers of the fall in the unemployment rate, in his press conference, seem intended to weaken the link between the unemployment rate and when (or by how much) the Fed eventually raises rates,” said Mr. Juckes, referring to the fact that the central bank had pegged the inevitable rate hike to the level of unemployment.

“So he's saying the unemployment rate doesn't point unambiguously to a recovery in the labour market, and inflation is low, so he afford to continue to be the most dovish central banker in the world.”

Before yesterday, investors had been extremely anxious, fearing the Fed would cut the QE program by too much. They want to be certain the economy and the markets can handle a pullback.

Which is why the S&P 500 and Dow Jones industrial average set record closing levels. That spread today into Asian and European markets.

Tokyo’s Nikkei climbed 1.8 per cent, and Hong Kong’s Hang Seng 1.7 per cent.

In Europe, London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were up by between 0.9 per cent and 1.4 per cent by about 8 a.m. ET.

New York also appeared set to celebrate a higher open.

“Given the extreme moves in financial markets overnight and this morning, some participants have been on the receiving end of a short and sharp lesson on the dangers of attempting to second guess the U.S. Federal Reserve,” said senior market strategist Brenda Kelly of IG in London.

“The Fed’s dovish message and failure to reduce its current asset purchasing program has sent the dollar reeling to a near seven-month low,” she added in a research note.

“Equity markets, on the other hand, are rallying, and the FTSE 100 has seen gains of 1.5 per cent in early trade as the mining sector soars on the metal price recovery. Gold has seen gains of over 4 per cent on dollar weakness and potentially premature fears of forthcoming inflation.”

Ford upgrades Canadian plant
Ford Motor Co. is pumping $700-million into a Canadian assembly plant to “meet surging global demand.”

The auto maker said today the investment would secure more than 2,800 jobs in Oakville, Ont., as it retools.

“The enhancements at Oakville Assembly are Ford’s latest step in maximizing its existing North American manufacturing assets, matching production to consumer demand as Ford’s North American sales surge to pre-recession levels,” the auto maker said, adding it will bring “several new models” to the factory.

As The Globe and Mail’s Greg Keenan reported earlier this week, the Canadian and Ontario governments are kicking in some $135-million to the Oakville overhaul, which will allow Ford to retool to assemble mid-sized crossover utility vehicles.

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