These are stories Report on Business is following Thursday, Jan. 29, 2015.
Oil, central banks drive down loonie
The Canadian dollar is sinking ever deeper, hitting its lowest in almost six years, amid the ongoing rout in the oil market and increasingly “dovish” central banks.
The currency today touched a low point of 78.92 cents U.S. and a high of 79.92 cents, having plunged below the 80-cent mark yesterday as crude prices tumbled again. It sat at about 79.3 cents by late afternoon.
The crude slump picked up speed today, though then regained some ground, coupled with strength in the U.S. dollar.
The loonie, as the country’s dollar coin is known, is being hit by the double-barrelled slam of oil and the views of central banks, including those of Canada, New Zealand and, soon, Australia.
“So we’re having this overarching theme of these dovish central banks juxtaposed against the Fed,” said chief currency strategist Camilla Sutton of Bank of Nova Scotia.
Last week, for example, the Bank of Canada announced a surprise cut in its benchmark interest rate, sending the loonie plunging as it cited the uncertainty of the oil market.
And today, though it held its key rate steady, the Reserve Bank of New Zealand warned of the uncertainty and “financial market volatility,” adding that “the lower oil price will have a significant impact on prices and activity” in the country.
The central bank also said that the level of the kiwi, as currency traders often call New Zealand’s dollar, “remains unjustified” despite recent easing, and that it expects “a further significant depreciation.”
Most importantly, it expects rates to hold steady for “some time.”
Yesterday, of course, the Federal Reserve set the stage for a rate hike this year, possibly in June but no sooner.
So while the U.S. central bank is poised to start a new cycle, others are not.
Up next is the Reserve Bank of Australia, next week, which is also expected to be dovish, said Ms. Sutton.
“Attention has switched incredibly quickly to the RBA meeting next week, with growing speculation of a cut despite the slightly higher-than-expected core [consumer price index] reading released yesterday,” added Kit Juckes, the chief of foreign exchange at Société Générale.
Just two years ago, noted Bank of Montreal chief economist Douglas Porter, the Canadian dollar was about a penny shy of parity with its U.S. counterpart.
The loss over that period of almost 20 per cent marks the fastest two-year depreciation on record, he added in a research note titled “Canadian dollar: 80 is the new 90.”
“Some take comfort in the fact that other currencies are sliding as well against a rising greenback,” he added.
“But the effective trade-weighted C$ has also plunged over the past two years … There will be consequences.”
Those consequences, of course, can be both positive and negative. But the bottom, Mr. Porter said in an interview is that “consumers lose, producers win.”
Basically, the lower loonie puts upward pressure on a “wide variety” of consumer prices, particularly for imported goods, which would affect the supply chain over time.
And, if course, if you happen to be travelling to the United States, where the loonie now buys that much less, you lose, as well. Though it’s better in other countries.
On the other side of the ledger, Canadian exporters and companies that compete with U.S. rivals will benefit. The longer the currency stays down, and the further it goes, for that matter, those exporters “will find their profit margins widening,” Mr. Porter said.
Going forward, economists increasingly believe the Bank of Canada may well cut rates again, which, of course, would further weigh on the loonie. And when the Fed hikes, that’s even more pressure.
CIBC World Markets chief economist Avery Shenfeld, for one, said another cut by the Bank of Canada is likely, and “markets may then guess about a third.”
He projected the currency will slide to 77 cents, above other calls for a 75-cent dollar and way above the 71 cents seen by Goldman Sachs Group Inc. for 2017.
The Danes, meanwhile, seemingly don’t like to waste time.
Denmark’s central bank cut a key rate again, for the third time in about two weeks, moving to hold the kroner’s peg to the euro .
It lowered the rate on certificates of deposit to 0.5 per cent, moving further into negative territory.
- David Parkinson: Fed stays on target for June rate hike despite turmoil in global markets
- Canadian dollar dives below 80¢
- David Parkinson in ROB Insight (for subscribers): Oil shock optimism about consumer spending growth is overstated
- Scott Barlow's Inside the Market (for subscribers): Goldman Sachs forecasts 71-cent loonie
- The speculators, the loonie and the big score
- Canadian dollar falls fast and furious: 'The race to the bottom continues'
- Barrie McKenna: Poloz says cut to key rate a hedge against plunging oil prices
- Tavia Grant: 'My jaw hit the desk': A Canadian currency trader's wild morning
Earnings flood in
There’s no stopping the flood of earnings.
A wide variety of companies from across various sectors are reporting results today.
“Aggregating the data, thus far 166 S&P 500 companies have reported earnings,” economists at Scotiabank said before today’s flood.
“Sales growth is running at 4.1 per cent year over year, which is in line with recent quarters, while earnings growth is running at 6 per cent year over year, slower than Q3’s 9.1 per cent year over year but still solid (especially considering the strong base from Q4 2013 when earnings were up by 8.9 per cent year over year),” they said in a research note.
“There are still plenty of numbers left to be seen, but roughly 1/3 of the way through Q4, earnings season is looking solid.”
- Google revenue falls short as mobile competition intensifies
- Amazon tops quarterly profit expectations, misses revenue forecasts
- Canadian oil sands cuts dividend 86% as shares slump
- Alibaba shares drop after revenue falls short of expectations
- Ford beats street, maintains 2015 profit forecast
- Rogers boosts dividend as profit beats estimates
Potash Corp. gains
Shares of Potash Corp. of Saskatchewan Inc. gained slightly today after a dividend hike and a stronger fourth-quarter earnings report.
Potash profit almost doubled in the final quarter of last year, to $407-million (U.S.), or 49 cents a share, from $230-million or 26 cents.
As The Globe and Mail’s Rachelle Younglai reports, the Canadian potash giant seems to have benefited from the troubles of a Russian competitor, Uralkali, which was forced to suspend operations at a main site last year in the wake of a brine flood.
Potash Corp. also hiked its quarterly dividend by about 9 per cent, to 38 cents from 35 cents.
The company also projected first-quarter earnings per share of 45 cents to 55 cents, and an annual profit of $1.90 to $2.20.
Shell pulls back
Royal Dutch Shell PLC is the latest energy giant to slash costs amid the plunge in oil prices.
The company, which missed the estimates of analysts as it posted a tumble in profit today, also announced plans to cut spending by $15-billion (U.S.) over three years.
“Our strategy is delivering, but we’re not complacent,” said chief executive officer Ben van Beurden.
“Weaker oil prices underline that there’s a lot more to do. The three themes of financial performance, capital efficiency and project delivery will remain as Shell’s priorities in 2015.”
- Shell cuts spending by $15-billion as lower oil price takes toll, profit falls 57%
- Carrie Tait: Cenovus cuts spending, shelves projects as oil continues to slide
Regulator opens the door
Canadians will soon be able to see American Super Bowl ads, long a sore point north of the border.
Not this weekend, though.
As The Globe and Mail’s James Bradshaw and Susan Krashinsky report, the Canadian Radio-television and Telecommunications Commission promised today to stop broadcasters from putting Canadian commercials in their place.
That will start in two years, CRTC chairman Jean-Pierre Blais said today.
Streetwise (for subscribers)
ROB Insight (for subscribers)
- Net neutrality: CRTC bans Bell from subsidizing data usage for mobile TV app
- Wind, Mobilicity to square off in spectrum auction
- U.S. jobless claims drop sharply to near 15-year low
- Canadian Dollar / US Dollar FX Spot Rate0.75860.0000(0.00%)
- Crude Oil Front Month Futures$51.48+0.64(+1.26%)
- Potash Corporation of Saskatchewan Inc$26.04+0.62(+2.44%)
- S&P/TSX Composite15,312.20+17.00(+0.11%)
- S&P 500 INDEX2,259.53+13.34(+0.59%)
- Dow Jones Industrials19,756.85+142.04(+0.72%)
- Updated December 9 4:00 PM EST. Delayed by at least 15 minutes.