These are stories Report on Business is following Friday, Oct. 3, 2014.
The Canadian dollar is sinking again amid a strong economic reading in the United States and a weak one in Canada.
At the same time, stocks are rising and gold prices are falling.
The U.S. dollar climbed after a Labor Department report showing America’s economy churned out a more-than-expected 248,000 jobs last month, with the unemployment rate easing to below the 6-per-cent mark, at 5.9 per cent compared to August’s 6.1 per cent.
At the same time, the latest Statistics Canada measure of Canadian trade showed the country plunging to a deficit in August from a hefty July surplus.
At one point in the day, the loonie, as Canada’s dollar coin is known, was down by almost a penny, having opened at 89.63 cents U.S. and dipping to 88.73 cents. Later in the day, it regained some ground, though remained below 89 cents.
“This week there was a lot of risk, and most of that has now passed, and most of that supports an ongoing U.S. dollar strengthening trend,” said chief currency strategist Camilla Sutton of Bank of Nova Scotia.
Market watchers see the Canadian dollar tumbling to as low as the 83-cent range next year.
HSBC Bank Canada was the latest to weigh in this week, projecting the dollar will erode by the end of 2015 to just above 83 cents (U.S.)
But some others aren’t far off that mark. CIBC World Markets, for example, projects a loonie, as the Canadian dollar’s known, of 85 cents. Société Générale forecasts just over 86 cents. And Bank of Nova Scotia sees it more around the 89-cent level, where it stands today.
The loonie is being hurt by the rally in the U.S. dollar, the belief that the Bank of Canada will lag the Federal Reserve in raising interest rates, and concerns over China’s economy, which can weigh on commodity-linked currencies.
Observers such as David Watt, economist at HSBC Canada, believe the U.S. dollar’s ascent will continue.
As does Kit Juckes, the chief of foreign exchange at Société Générale.
“The dollar rally still has room to run given that it remains 10 per cent lower than a decade ago on a real trade-weighted basis,” Mr. Juckes said.
“As the Fed steps away from ultra-loose policies, the dollar should gain against the chief beneficiaries of those policies, namely emerging market and commodity currencies.”
U.S. churns out jobs
Six years after the onset of the meltdown, the U.S. unemployment rate is back below 6 per cent.
The U.S. economy churned out 248,000 jobs last month, with the rate easing to 5.9 per cent, the lowest since July, 2008, from 6.1 per cent in August, according to the Labor Department today.
The participation rate, though declined to 62.7 per cent, the lowest since 1978, as almost 100,000 people left the labour force.
As our Washington correspondent Kevin Carmichael writes, today’s reading will further raise speculation about when the Federal Reserve will begin to raise interest rates.
“The rebound in US payrolls and further fall in the unemployment rate in September boosts the chances that the Fed will first raise rates in March of next year rather than waiting until June,” said Paul Dales of Capital Economics.
“We always said that the easing in August seemed odd when all the other labour market data had stayed strong and that’s proven to be the case,” he added.
Stephen Poloz’s hoped-for export rebound suffered a setback in the waning days of the summer.
As The Globe and Mail’s David Parkinson reports, Canada plunged in August to a trade deficit of $610-million, from a hefty July surplus of $2.2-billion, as exports sank and imports climbed.
Imports rose 3.9 per cent and exports slipped 2.5 per cent, according to Statistics Canada today.
Mr. Poloz and his colleagues at the Bank of Canada have been counting in a pickup in exports, buoyed by stronger U.S. demand and a weaker loonie.
“After a string of balmy numbers in earlier summer months, expectations were slowly ratcheting higher for Canada’s trade balance,” said Nick Exarhos of CIBC World Markets.
“But sometimes, two steps forward are followed by a step backward.”
- David Parkinson: Canada plunges to unexpected trade deficit
- U.S. trade gap narrows in August on record exports
The battle lines are being drawn in the battle over the future of U.S. Steel Canada Inc., as the company’s financing plan faces opposition from the Ontario government and the union representing its workers.
The Ontario government and the United Steelworkers union are opposing all or part of the company’s plan to accept $185-million in debtor-in-possession financing from its parent, United States Steel Corp., in the steel maker’s protection from creditors under the Companies’ Creditors Arrangement Act, The Globe and Mail's Greg Keenan and Adrian Morrow report.
The loan facility “is a thinly veiled loan-to-own strategy designed by United States Steel Corp. working with [U.S.] Steel Canada and its board of directors to prefer the interests of USS as a bidder for at least the Lake Erie Works,” the union said in a court filing.
The Ontario government warned that the steel maker must pay up on a $150-million loan from the province, meet its obligation to its pensioners and take responsibility for environmental cleanup at its Ontario plants.
“The province is a creditor of US Steel Canada pursuant to the $150-million Province of Ontario Loan Agreement,” provincial Finance Minister Charles Sousa said in a statement.
We also have an existing agreement with US Steel that requires the parent company to guarantee certain payments on their pension obligations.”
Regent's Magris in deal
Barrick Gold Corp.’s former chief executive is leading a group in a $500-million deal to buy a Quebec rare earths mine from Iamgold Corp.
Iamgold said today it’s selling its Niobec mine, so it can focus on gold, to Magris Resources Inc., of which Aaron Regent is chief.
The mine is one of three niobium producers in the world.
"Niobec has many of the characteristics we've been looking for … strong market fundamentals for its core product, substantial operating margins, and a long mine life in an attractive jurisdiction, Mr. Regent said.
In a country that gave us the housing crash heard ‘round the world, even Ben Bernanke is finding mortgage refinancing difficult now.
According to Bloomberg News, the former chairman of the Federal Reserve told a Chicago conference yesterday that “I recently tried to refinance my mortgage and I was unsuccessful in doing so.”
As Bloomberg tells it, the audience chuckled. To which Mr. Bernanke responded that “I’m not making that up.”
In his talk to the National Investment Center for Seniors Housing and Care, the former chief of the U.S. central bank, which to this day still holds its benchmark interest rate at effectively zero, spoke of how it’s quite possible that mortgage lenders “may have gone a little bit too far on mortgage credit conditions.”
The big question, of course, is why Mr. Bernanke couldn’t refinance. And he didn’t disclose that.
The Dow Jones news service, however, speculates that his mortgage may be too fat to qualify for government support.
According to the news service, he and his wife bought the Washington home for $839,000 (U.S.) a decade ago and have since refinanced twice.
In 2011, when they last refinanced, Dow Jones said, they owed $672,000 and closed the deal just before the maximum to qualify for government backing was cut to $625,500 from $729,750.
Which means that Mr. Bernanke would need to pay down if he “hasn’t substantially paid down” the principal.
The New York Times, in turn, put it this way: Lenders now have to meet the loan requirements set by America's government mortgage concerns, Fannie Mae and Freddie Mac, and this amid heightened regulatory scrutiny.
So it all gets computed based on a variety of inputs. Thus, a computer would see Mr. Bernanke as having ended a long spell of employment, and so maybe he's deemed a greater risk. No matter that he's got a book deal and earns a bundle for his speaking engagements.
The whole point of his talk yesterday, Dow Jones said, is that even solid borrowers can run into trouble in the post-crisis era.
“The housing area is one area where regulation has not yet got it right,” he said. “I think the tightness of mortgage credit, lending is still probably excessive.”
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