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Dollar to rebound, Scotia says
The Canadian dollar has been driven down by global events but will see parity with the U.S. currency again by the fourth quarter of the year and rise slightly through 2011, Scotia Capital says in a report today. The loonie will be worth $1.03 U.S. by the fourth quarter of next year, it said in a foreign exchange outlook. The dollar's shine "might have been temporarily tarnished, but parity is still on the horizon," currency strategist Camilla Sutton wrote.
Projections for global growth, hurt by Europe's debt troubles and the potential impact of government austerity measures, have affected oil prices, which in turn help drive the loonie, but the outlook is still reasonably robust, she said. And while there are "hurdles" ahead for Canada's economy, it is still well placed. As well, the Bank of Canada has begun raising interest rates, with its first move yesterday, which also should help boost the currency. The dollar climbed sharply today to retake the 96-cent U.S. level.
Markets bet on next rate hike
Mark Carney's quarter-point interest rate hike yesterday was ... so yesterday. Markets are now looking ahead to the next Bank of Canada meeting July 20 and their odds are 36 per cent of another increase in the benchmark overnight rate of one-quarter of a percentage point, which would bring it to 0.75 per cent. Yesterday, the central bank made its first move since the financial crisis and recession, becoming the first among the G7 to do so. But it also sent a signal that it would take into account the turbulence in the markets and further economic data before hiking again.
How will rate hike be felt?
The hike, which still holds the benchmark rate at an exceptionally low 0.5 per cent, was largely symbolic and the economy won't feel it, Scotia Capital economists Karen Cordes Woods and Derek Holt said today, citing two reasons.
"One is that longer borrowing costs have fallen in offsetting fashion, and has [the Canadian dollar]" they wrote. "Forget the spread watchers, it's the yield that matters to main street, including main street USA where the all-important 30-year fixed mortgage rate fell from a peak of 5.25 per cent in April to the 4.9-per-cent mark today driven by safe-haven seeking into government bonds."
Also, they said, "financial innovation" in Canada gives borrowers much more control to adjust principal repayment schedules in response to rate changes. That has developed since the mid-1990s, beginning with the popularity of revolving lines of credit that see the borrower determine the principal repayment schedules, and has since spread.
"Households have more ability than ever to offset modest rate changes with modified principal repayment schedules than ever before," they said. "Real tightening in this cycle will only begin when the overnight rate has climbed much further."
Bombardier profit falls
The market for business jets is beginning to stabilize after the slump, Bombardier Inc. said today as it topped analysts' estimates, though only just, with first-quarter profit. The aerospace and rail manufacturer said profit in the quarter dipped 3 per cent to $153-million (U.S.) or 8 cents a share from $158-million or 9 cents a year earlier. Revenue also slipped to $4.25-billion from $4.47-billion. "Key indicators in the business jet market are showing signs of stabilization and our level of business aircraft cancellations has substantially decreased," said chief executive officer Pierre Beaudoin. Read the story
Messier, Bronfman on trial
Edgar Bronfman Jr. and Jean-Marie Messier face trial in a Paris court today on charges related to the near collapse of Vivendi Universal, the one-time water company that became a major media concern. Mr. Bronfman, the grandson of Montreal's legendary Samuel Bronfman, Mr. Messier and five others are involved in the saga involving Vivendi, whose shares plunged several years ago amid massive debts from the takeovers of Universal and Europe's Canal Plus pay-TV operation, among others. Prosecutors in the case recommended that it be tossed out, but a judge ordered the trial to proceed regardless.
The case involves allegations of misleading investors. A lawyer for Mr. Bronfman, accused of insider trading, asked the court today to drop the charges, saying he "should not be before this court" and that the judge was wrong. Read the storyReport Typo/Error