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Canadian dollar now a 'de facto global currency' Add to ...

These are stories Report on Business is following Thursday, Nov. 22, 2012.

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Loonie ascends
As David Rosenberg sees it, the loonie is now a global currency.

The chief economist at Gluskin Sheff + Associates was referring this week to a plan by the International Monetary Fund to include the Canadian and Australian dollars on a list of currencies in quarterly reports on the foreign exchange reserves held by central banks.

Up until now, the composition of foreign exchanges reserves, or COFER, broke out the U.S. dollar, the euro, Japan's yen, Britain's pound and the Swiss franc. The Canadian and Aussie dollars fell in the "other" category. That's now likely to change next year, The Globe and Mail's Barrie McKenna reported this week.

As central banks such as those in Russia and Switzerland add the loonie, as the dollar coin is known in Canada, a survey showed it was worth showing it separately, according to the IMF.

"The Canadian dollar has actually become a de facto global currency as foreign central banks have been increasingly loading up loonies as part of their reserve portfolios, reflecting Canada's growing importance in the global economy as well as prudent monetary policy, a truly triple-A sovereign rating and a pro-business majority government," Mr. Rosenberg said yesterday.

"However, this move will go beyond symbolism as it will make official the Canadian dollar as international reserves, and the status upgrade from the IMF will certainly boost more global diversification into Canada, which will further strengthen the CAD value in our view - especially if in the next review of the SDR (Special Drawing Rights) basket, the Canadian dollar and the Aussie dollar are included," he added, referring to the loonie by its symbol.

Canada has been drawing in foreign money in a post-crisis era of investors looking for havens, which has helped buoy the currency, to the dismay of the country's exporters. That's not expected to end soon.

"Global investors share the IMF’s optimism: Over the past couple of years, investors wary of the euro zone's outlook have stepped up purchases of Canadian debt securities," said Bodhi Ganguli of Moody's Analytics.

"Nonresidents have acquired $55.8-billion of Canadian debt securities in the first nine months of 2012, on par with the same period in 2011. This trend is expected to continue over the near term."

Just sayin’
In the text of a speech to the Toronto Board of Trade today, Jim Flaherty referred five times to “our children and grandchildren.”

Like this: “We simply cannot afford to risk the future of our children and grandchildren by running deficits longer than necessary. “

Which leads to remind the Finance Minister of what Statistics Canada said about our children and grandchildren earlier this month: “Employment among youths was little changed for the second consecutive month and was down by 52,000 (-2.1 per cent) compared with 12 months earlier. Their unemployment rate was 14.7 per cent in October.”

National Bank boosts RIM outlook
Research In Motion Ltd. shares surged today as another analyst has raised his outlook in the run-up to the launch of the new BlackBerry 10.

Analyst Kris Thomspon of National Bank Financial today hiked his target on RIM shares to $15 (U.S.) from $12, arguing there’s more money to be had in advance of the launch Jan. 30.

“The new management team is executing by maintaining the BlackBerry subscriber base, managing costs and cash, and seemingly reading a February 2013 BB10 global platform launch,” Mr. Thompson said in a research note.

“Most analysts were expecting a March launch.”

Mr. Thomspson is the second analyst this week to boost his target, following a similar move by Peter Misek of Jefferies & Co., who doubled his to $10, saying he’s seeing better-than-expected support from carriers.

“Buy the stock ahead of the BB10 product launch when we expect shipment estimates to increase, especially from U.S. brokers where a break in negativity could lead to short covering and ongoing stock momentum.”

National Bank has also boosted the outlook for sales next year, to 35.5 million devices from 31.6 million, for a global market share of 4.5 per cent.

China gains momentum
A fresh reading of Chinese industry suggests a “genuine recovery,” buoying hopes that the engine of the world’s economic growth isn’t falling flat.

A purchasing managers index from HSBC and Markit for November crossed the 50 mark, the line that separates contraction from expansion.

“The PMI breached the 50 line for the first time since October 2011, which should provide reassurance that this is a genuine recovery rather than the volatility observed earlier this year,” said Mark Williams and Qinwei Wang of Capital Economics.

Hopes for a solid rebound, however, are another matter, they said, given the “lingering weakness in domestic demand and uncertainty overseas.”

The private reading came in at 50.4, up from October’s 49.5.

The official government PMI had already crossed the mark in October, rising to 50.2 from just shy of the key number.

Today’s reading casts a better light on the entire area.

“Along with some quite encouraging details, the survey supports the view that the cyclical upswing in China - and by extension in the whole Asia-Pacific region - is gathering strength,” said Société Générale.

“The solid increase in this particular index also suggests that the upswing in China is broadening out to smaller manufacturing companies.”

Europe slump continues
Europe is another matter entirely, with new measures showing the embattled region failing to make headway amid its raging debt crisis.

A similar HSBC-Markit reading of both manufacturing and services in the 17-member euro zone showed yet another contraction, at 45.8, little changed from October.

“The weak euro zone PMI outturn for November is a major disappointment in light of the increases in the German and French PMI surveys, and suggest that that the recession on the euro zone’s periphery is gathering further pace,” said Martin van Vilet of ING Bank NV.

“The lack of change in the headline composite index (45.8 versus 45.7 in October) reflected diverging movements across the main components,” he said in a research note.

“In a clear sign that fiscal tightening continues to take a heavy toll on domestic demand, the services PMI fell from 46 to a 40-month low of 45.7. The manufacturing PMI, by contrast, improved, but at 46.2 it remains in deep contraction territory.”

EU budget talks begin
The weak Europe numbers came as European Union leaders began talks in Brussels on a long-term budget for the wider 27-member group.

These are tense times at the table in Brussels as some countries – notably the euro zone’s periphery – suffer while others fare much better.

Everyone wants to protect their turf, which is to be expected, but the divisions within Europe have been cited as playing a major role in the protracted crisis.

Indeed, Britain’s David Cameron arrived in Brussels with a warning over just how tough the talks for the seven-year budget would be.

“These are very important negotiations,” he said, according to The Associated Press.

“And clearly, at a time when we’re making difficult decisions at home over public spending, it would be quite wrong — it is quite wrong — for there to be proposals for this increased extra spending in the EU.”

There has been mounting pressure on Europe’s leaders to act in a more unified fashion in a bid to spur economic growth.

“Putting aside and parking the perennial problem of Greece and the preoccupation about its debt to GDP ratio and debt sustainability for a few days, there remains the problem of a European economy mired in recession, with EU leaders too preoccupied with meetings and protracted budget negotiations to notice that growth is non-existent and unemployment continues to rise rapidly,” said senior analyst Michael Hewson of CMC Markets in London.

Retail sales little changed
But for car buyers, Canadian consumers are holding the line.

Retail sales in September inched up just 0.1 per cent in September, less than expected, while in volume terms they were flat, Statistics Canada said today.

In dollar terms, the biggest gain consumers could eke out was a 0.6-per-cent rise at car and parts dealers, the federal agency said today. But when you break that down, sales rose 0.9 per cent among the dealerships and slipped 2.7 per cent at parts and accessories outlets.

Sales rose among clothing and shoe stores, and at electronics and appliance outlooks, though Statistics Canada noted that shopping at such stores have been “on a general downward trend since the end of 2011, mainly as a result of lower receipts from sales of televisions.”

And since you were wondering, beer and alcohol sales fell 1 per cent.

Bombardier workers reject proposal
Striking workers at Bombardier Inc.’s rail facility in La Pocatière, Que., have overwhelmingly rejected a contract offer from the company, The Globe and Mail’s Bertrand Marotte reports.

About 330 unionized employees voted late Wednesday 89.6 per cent against Bombardier’s proposal for a new collective agreement, the La Pocatiere union affiliated with the Confederation of National Trade unions said in a statement today.

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