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Canadian dollar coins are displayed on a map of North America. (Paul Chiasson/The Canadian Press)
Canadian dollar coins are displayed on a map of North America. (Paul Chiasson/The Canadian Press)

Business Briefing

Dovish and less-dovish: How Stephen Poloz and Janet Yellen crushed the Canadian dollar Add to ...

These are stories Report on Business is following Thursday, March 20, 2014.

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Loonie below 89 cents
Stephen Poloz and Janet Yellen are proving to be quite the team when it comes to the loonie.

Together, the two central bankers have pushed the Canadian dollar below 89 cents, where it stands today, albeit more stable, after a two-day rough patch.

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It all has to do with the outlook for interest rates, and market speculation over how that goes over the next several months.

The loonie, as Canada’s dollar coin is known, had been hovering above 90 cents until Tuesday, when Mr. Poloz, the governor of the Bank of Canada, painted a weak outlook for the economy and left the door open for a cut in the central bank’s benchmark rate, now at 1 per cent.

Then yesterday, after her first meeting as chair of the Federal Reserve, Ms. Yellen rattled the markets with the suggestion that a hike in the U.S. central bank’s key rate could come earlier than expected.

Where the loonie’s concerned, what it all comes down to is that “she’s less dovish than we thought and he’s more dovish than we thought,” said chief currency strategist Camilla Sutton of Bank of Nova Scotia.

As our Washington correspondent Kevin Carmichael reports, Ms. Yellen suggested that a hike in the benchmark rate, now effectively at zero, could come about six months after the Fed ends its bond-buying stimulus program, known as quantitative easing or QE, which it has begun to wind down.

That would be earlier than expected, and thus the move in stocks and the U.S. dollar, which shot higher yesterday, in turn pushing down the loonie.

“That’s a big shift,” Ms. Sutton said of that six-month timeline.

Next, we’ll see how tomorrow’s reading on inflation plays into the currency turmoil.

A soft reading by Statistics Canada on how consumer prices fared in February could heighten expectations in the market of a rate cut, or vice-versa.

Economists expect the report to show the annual inflation rate easing to about 1 per cent in February, while on a month basis, consumer prices are believed to have climbed by 0.6 per cent from January.

“With governor Poloz not ruling out rate cuts in Canada (after his speech Tuesday), chair Yellen hinting at possible Fed rate hikes as early as next spring (‘around six months’ after QE ends, which we peg in October, 2014), and Quebec election uncertainty looming, the loonie will be flying through severe turbulence in the months ahead,” said senior economist Sal Guatieri of BMO Nesbitt Burns.

Rahim Madhavji of Knightsbridge Foreign Exchange in Toronto expects the loonie to feel the Poloz-Yellen heat for the next three months as the U.S. dollar continues to rise, with no “near-term catalyst” for its Canadian counterpart.

Mr. Madhavji projects the Canadian currency will trade between about 87 cents and just over 89 cents for up to six months, and then to the 94-cent area by mid-2015.

“With the U.S. reducing stimulus, growing economically, and moving towards a clear path of higher interest rates, this will attract flows of funds in to the U.S. and U.S. yields push higher as they have been,” he said.

Toll mounts
Government officials are moving to end a strike at Vancouver's port, Canada's busiest, as the toll mounts.

The B.C. and federal governments said yesterday they will force truckers back to work with legislation expected early next week. Simultaneously, the port said it will not renew the licences of non-union truckers if they don’t go back.

Economists are painting a bleak picture of the impact, and how that would ripple through to the broader economy and consumer prices.

As The Globe and Mail’s Carrie Tait, Eric Atkins and Justin Giovannetti report, businesses are already hurting as costs rise amid the backlog at Port Metro Vancouver.

Companies have had to find alternate routes for their goods, and have been notifying workers of layoffs.

“The economic costs of the strike at the Vancouver port, a major gateway for exports to Asia, continue to mount,” said BMO’s Mr. Guatieri.

“The strike has thrown a wrench into the supply chain of many companies, especially in British Columbia but elsewhere, too, with pump mills in Alberta threatening to close this week. Layoffs will likely mount should the strike drag on.”

Higher costs for storage and alternate routes will probably be passed on to consumers, at least partly, Mr. Guatieri said, particularly for food.

“Because the port handles more exports than imports, the disruption will lead to a sharp deterioration in the trade balance in March,” he added.

“Goods industries most impacted will be coal, forest products and grains, but few sectors will be spared.”

It comes just as manufacturing was looking up, given the benefits of a lower dollar and a better outlook for the United States, Canada’s main trading partner. Thus the strike may well hit first- and second-quarter economic growth if it doesn’t end soon.

“This new brake on the economy could dampen the growth rebound that was expected following a miserable winter,” Mr. Guatieri said.

Regulators unveil proposed rules
Most of Canada’s securities regulators have unveiled new rules that will allow companies to raise equity through crowdfunding portals, giving small companies the ability to tap into the huge trend of fundraising over the Internet, The Globe and Mail's Janet McFarland reports.

Regulators in Ontario, British Columbia, Quebec, Manitoba, Saskatchewan, New Brunswick and Nova Scotia said today that they are developing new standards to allow companies to raise money from crowdfunding websites. Several provinces said they will adopt similar standards.

The Ontario Securities Commission, for example, said companies in that province will be able to raise a maximum of $1.5-million in equity in any 12-month period through crowdfunding, and individuals will be able to invest no more than $2,500 in a single crowdfunding project. Individuals will also face an annual maximum limit of $10,000 on any investments in equity offerings through crowdfunding projects.

The British Columbia Securities Commission, however, said it will allow companies to raise just $150,000 per offering, and to do offerings no more than twice in one year. Investors will be limited to a maximum of $1,500 in a single offering.

Industry shrugs off Redford resignation
The heart of Canada’s energy sector in limbo this morning with the resignation of Alberta’s premier, but the industry is largely shrugging it off.

As The Globe and Mail’s Jeffrey Jones reports, the oil patch has watched political developments with interest, but with little fear.

There’s little likelihood of any shift in energy policy as Alison Redford steps down and the race begins to replace her, Mr. Jones writes.

This comes as observers project strong times for Alberta.

Just today, the Conference Board of Canada forecast that the province will boast the country’s best economic performance this year, while created some 61,000 jobs.

“The strength in Alberta’s energy sector will continue to stimulate the economy,” the group said, projecting Alberta will chalk up economic growth of 3.2 per cent this year.

“A risk to the forecast is the delay in pipeline development,” it added.

“Oil pipeline capacity remains a challenge for Alberta and without the construction of new pipelines, future investment in the oil and gas sector could be curtailed.”

Weather hits first flight
Bombardier Inc. has delayed the first flight of its new Learjet 85 business jet at its testing facility in Wichita because of adverse weather conditions, The Globe and Mail's Bertrand Marotte reports today.

The 10-passenger all-composite aircraft – one of Montreal-based Bombardier’s major new models in the aerospace segment – has already been delayed due to technical problems and was supposed to have undergone first flight by the end of last year.

Bombardier president and chief executive officer Pierre Beaudoin said at an investor presentation in New York today that the Learjet 85 will have its first flight when weather conditions permit.

The Learjet 85 is intended to fill a new niche in the business-jet segment between mid-size and super-midsize.

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