Skip to main content
business briefing

Briefing highlights

  • Canadian dollar dives below 74¢
  • U.S. hits Canada with softwood duties
  • Great-West cuts deep
  • A look at earnings season so far
  • Home price surge blamed on Ontario plan

Loonie falls hard

The U.S. decision to slap duties on Canadian softwood lumber exports is hitting the loonie hard.

The Canadian dollar slumped overnight, tumbling below the 74-cent U.S. mark, after Commerce Secretary Wilbur Ross unveiled the preliminary countervailing levies in the long-running fight over lumber.

The currency has traded as low as 73.39 cents. It closed above 74 cents Monday, having already been hit.

“It looks like the ‘100-days-in-the-office’ threshold has given a boost to Donald Trump,” London Capital Group senior market analyst Ipek Ozkardeskaya said of the duties and the impact on the loonie.

“He is running in all directions.”

Indeed, the softwood decision is the latest flare-up as tensions mount between Canada and its biggest trading partner. Last week, Mr. Trump lashed out at Canada over its dairy and energy industries, as well.

As The Globe and Mail’s Brent Jang and Adrian Morrow report, the levies on five Canadian exporters range from 3.02 to 24.12 per cent, with other companies facing a weighted average of almost 20 per cent over what the U.S. says are subsidies.

These will be followed by a preliminary ruling on anti-dumping duties in late June.

“New tariffs on softwood lumber could be a multibillion gap in the Canadian trade terms, given that the Canadian softwood represents roughly one-third of the U.S. market,” Ms. Ozkardeskaya said.

“If we extrapolate what is happening on the entire market, restrictions on softwood could unfortunately be just a beginning.”

The levies are actually at the low end of the 20- to 30-per-cent range expected by some observers, including Bank of Montreal and Royal Bank of Canada.

The June anti-dumping levies, in turn, are expected to be between 10 and 15 per cent, said Sue Trinh, RBC’s head of Asia foreign exchange strategy in Hong Kong.

This is the start of a longer process, Ms. Trinh said, noting that Canada won’t see a final combined rate until November, which would then be confirmed next January.

“The Canadian government won’t be able to appeal until the entire process is complete,” she added.

Lumber costs climbed 25 per cent earlier this year as “Canadian producers worked through the mental math and established de-facto tariff pricing,” said BMO deputy chief economist Michael Gregory. They then slipped but are still about 15 per cent above where they sat in January.

It’s not just logs, pulpwood and other forestry products, either, said RBC’s Ms. Trin. There are also building and packaging materials.

“What is often missed is that homebuilding accounts for only a third of lumber consumption; renovations, furniture and consumer goods account for the lion’s share,” added Mr. Gregory.

It’s not just the duties, either, but also what may come next, warned CIBC World Markets chief economist Avery Shenfeld.

“Lumber products represent about 3 per cent of total goods exports, so whil it’s a material story for some regions (particularly B.C.), the broader macro impact is in the decimal places of GDP,” Mr. Shenfeld said.

“It’s likely that the reaction today is on fear that the lumber duties are the tip of the iceberg, showing that despite cozy talk between Trudeau and Trump, the U.S. is willing to flex its muscles to show a protectionist ‘win.’”

There’s more at play here, as well, notably falling oil prices, to which the loonie is tied, even though OPEC is trying to buoy crude with a production-cap agreement.

“The downside pressure due to the oil component is here to stay, on top of the rising trade concerns,” said Ms. Ozkardeskaya.

“The U.S. trade policies that could further weigh on the Canadian trade terms, soft oil markets and the broadly stronger U.S. dollar will likely keep the selling pressure tight on the loonie,” she added, projecting the currency could sink as low as 70 cents.

Kit Juckes of Société Générale also believes the currency could tumble further.

“The Canadian dollar is cheap, but the economy’s hardly charging forward, and this latest move has a strong chance of seeing a break higher towards USD/CAD 1.40 before the CAD does, finally, become a really attractive long-term buy,” he said, referring to the U.S. and Canadian currencies by their symbols.

Looked at the other way, the loonie would be worth just shy of 71.5 cents.

Ms. Trinh, however, thinks the move in the currency is “overdone.”

Great-West cuts deep

Great-West Lifeco Inc. is making sweeping changes to its Canadian business, cutting staff as it moves to reduce costs in an increasingly competitive industry, The Globe and Mail’s Jacqueline Nelson reports.

The Winnipeg-based insurer plans to broadly reduce its Canadian head count by as much as 13 per cent, or 1,500 positions, in the next two years.

It will also slim down its real estate footprint and invest in some new technology systems. As a result of the restructuring, Great-West will take a charge of $215-million before tax in its second quarter of 2017.

Profits, sales beating so far

In this heavy week of first-quarter earnings season, it’s worth looking at where things stand so far.

As of Friday, 95 companies accounting for 30 per cent of the S&P 500 have reported, with profits coming in 1 per cent better than forecast, according to Bank of America Merrill Lynch.

“Financials have been the biggest contributor to the beat so far, where the majority of banks have beaten both top- and bottom-line expectations despite slower loan growth, with strong trading results at a number of the large banks and several noting improving net interest margins as higher interest rates finally began to have a positive impact,” its strategists said.

So far, they added, 68 per cent of companies have topped projections on earnings per share, 64 per cent on sales, and 51 per cent on both.

Optimism is also running high.

“Managements’ positive tone on earnings calls has continued to from [the fourth quarter] into Q1, with optimism still at record levels and mentions of the word ‘better’ relative to ‘worse’ or ‘weaker’ still at levels last seen in late 2010.”

Want to interact with other informed Canadians and Globe journalists? Join our exclusive Globe and Mail subscribers Facebook group