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business briefing

Briefing highlights

  • Analysts expect Canadian dollar to fall
  • Loonie at about 75-cent mark
  • Trump eyes tariffs for Canada, Mexico
  • CIBC raises PrivateBancorp bid
  • Ford to create R&D centre
  • Lululemon shares plunge
  • Cenovus shares also tumble
  • New York poised for softer open

Bummer

I know I’m dating myself with this phrase, but the loonie is shaping up to be a real bummer.

Depending, of course, on who you are and what you want to see happen.

Three commentaries Wednesday alone suggest the loonie is poised to slump further as speculators take a suddenly dimmer view of the currency and the Canadian and U.S. central banks march to the beats of different drums.

And two of those reports suggest the loonie is overvalued, and thus has room to erode from its current level of around 75 cents U.S.

Here’s what’s at play:

Speculators

The latest report from the U.S. Commodity Futures Trading Commission showed a huge, and bearish, shift in sentiment among speculators as a net long position of $1.6-billion swung violently to a net short of $1.8-billion.

“The change represents a net swing in positioning equivalent to $3.4-billion,” currency strategists Shaun Osborne and Eric Theoret said in a report on the CFTC numbers, which were released late Friday and measured March 21.

“That will leave a mark on the CAD,” they added, referring to the loonie by its symbol.

Mr. Osborne and Mr. Theoret studied four similar shifts in sentiment since 2000, not including the financial crisis, to learn what happened in the two weeks following a big swing. These came in April, 2004, the same month one year later; March of 2013 and last September.

“The CAD tends to weaken in the two trading weeks following significant swings in positioning against it but the extent of the drop has varied quite significantly over the four examples,” the Scotiabank strategists said.

“CAD losses versus the USD equate to a little under 1 per cent on average,” they added, using the symbol for the U.S. dollar and suggesting the loonie could slip through early April.

Then it gets interesting for seasonal reasons. April may be the cruellest month for other things, but it tends to be good to the loonie before May rolls around and it changes again, Mr. Theoret said later.

Different drums

The divergence between the Bank of Canada and its American counterpart has been a big factor in the outlook for the loonie.

The Federal Reserve is now raising interest rates, but the Bank of Canada isn’t likely to follow any time soon, possibly not until well into next year, despite stronger economic indicators of late. That makes the Canadian dollar less attractive.

Indeed, Bank of Canada Governor Stephen Poloz said this week that raising his benchmark rate too soon could plunge Canada into a recession.

“We remain cautious about chasing the rally in CAD, especially since Poloz reiterated the BoC’s dovish tone,” said Mark McCormick, North American head of foreign exchange strategy at TD Securities.

“For one thing, he was not overly enthusiastic about the recent pickup in data. He indeed continued to stress the downside risks to economy.”

The U.S. dollar has suffered after President Donald Trump’s failure to push through health care reform, and partly because of European political developments, said foreign exchange strategist John Shin of Bank of America Merrill Lynch.

But the loonie “continues to outperform relative to its usual key determinants, rates and oil.”

Mr. Shin believes the Canadian dollar is overvalued by about 5 per cent, and he expects the currency to end the year at just shy of 72 cents before strengthening in 2018.

Whiners and losers

The loonie being a bummer might mean an equal bummer of a U.S. vacation, which would certainly get many of us whining over the cost of everything from a motel to dinner out.

And then there’s the cost if your daughter, say, happens to be looking at an American school for post-grad studies, and you’re facing the prospect of having to crowdfund tuition.

(Am I whining?)

But it’s good news for Canadian exporters whose prices become more competitive south of the border.

Mr. Poloz, too, won’t be shedding any tears as he’s counting on a weak loonie to help those exports along.

“Presumably a weaker CAD would likely fit into Poloz’s macro preferences at the moment,” said Mr. Shin.

And, of course, it’s good news for Americans who want to enjoy a hefty discount when they visit Canada.

Or use that discount to buy Canadian assets. Say, Toronto real estate.

Trump eyes NAFTA revisions

President Donald Trump’s administration wants the right to slap tariffs on Canadian and Mexican imports if they compete too strongly with American companies, as part of a renegotiated North American free-trade agreement, The Globe and Mail’s Adrian Morrow reports.

Getting such a provision written into NAFTA is one of more than 40 negotiating objectives outlined in a draft eight-page letter to Congress from acting United States Trade Representative Stephen Vaughan.

The missive also pledges to tighten rules of origin, which seek to discourage manufacturers in the NAFTA zone from importing too many components from non-NAFTA countries; getting rid of barriers to U.S. agricultural exports, which could mean scrapping Canada’s supply management system for dairy and poultry; and revamping NAFTA’s dispute resolution mechanism.

CIBC raises bid

Canadian Imperial Bank of Commerce is sweetening its bid to acquire PrivateBancorp Inc. by 20 per cent, after shares of the U.S. regional bank soared in the wake of the U.S. election, The Globe and Mail’s Christina Pellegrini reports.

The amended merger agreement values PrivateBancorp at $6.6-billion, or $60.92 (U.S.) per share.

PrivateBancorp’s investors are expected to vote on the transaction in mid-May, the companies said in a statement.

Ford to create R&D centre

Ford Motor Co. will establish a research and development centre in Ottawa as part of a $1.2-billion investment it will make in its Canadian operations over the next four years, The Globe and Mail’s Greg Keenan writes.

The auto maker made the announcement Thursday in Windsor, Ont., where its Essex Engine Plant will begin building a new V8 engine, preserving 500 jobs.

The Ontario and federal governments will contribute $102.4-million each to help finance the projects.

Lululemon plummets

Shares of Lululemon Athletica Inc. plunged Thursday in the wake of a disappointing outlook.

The yoga wear company on Wednesday posted a fourth-quarter profit of $136.1-million (U.S.), or 99 cents a share, up from $117.4-million or 85 cents a year earlier. Sales climbed to almost $790-million from more than $704-million.

Lululemon forecast first-quarter revenue of $510-million to $515-million, and earnings per share of 25 t0 27 cents.

For the year, it projected revenue of $2.55-billion to $2.6-billion, and earnings per share of $2.26 to $2.36.

Both are below what analysts had anticipated.

Cenovus tumbles

Shares of Cenovus Energy Inc. also tumbled after its blockbuster deal with ConocoPhillips Co.

As The Globe and Mail’s Jeff Lewis, Jeffrey Jones and Kelly Cryderman report, Cenovus unveiled a $17.7-billion deal late Wednesday to buy out partner ConocoPhillips in the Foster Creek and Christina Lake oil sands projects.

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