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Outlook for the Canadian dollar: Lower (maybe much lower) for longer Add to ...

These are stories Report on Business is following Wednesday, Feb. 4, 2015.

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Outlook for the loonie
The short-lived rally in the Canadian dollar lasted about as long as the short-lived rally in oil prices.

And, according to the round of forecasts, you can expect the loonie to stay depressed for at the least the next two years.

That’s expected to be a boon for exporters, a hassle for importers, and a headache for snowbirds.

The currency had perked up over the past couple of days, along with a four-day rally in crude prices.

That all changed today when oil tumbled again and the Canadian dollar with it, helped along by a “horribly weak” Ivey manufacturing report, said chief currency strategist Camilla Sutton of Bank of Nova Scotia.

So far today, the loonie has touched a low of 79.48 cents U.S., having been as high as 80.70 cents.

The crude rally stalled, and a U.S. inventory report just made it worse.

That report from the U.S. Energy Information Administration showed crude stockpiles at a record of more than 413 million barrels, up by 6.3 million from the last reading.

Oil is the prime factor behind the fortunes of the Canadian currency, but there are other things in play, particularly speculation of whether the Bank of Canada will follow its surprise rate cut with another one. Or even two.

In a new forecast issued late yesterday, Scotiabank projected the loonie will fall to just above 75 cents by the end of this year, and remain weak through next year, ending 2016 at just about 77 cents.

“In January, the Canadian dollar (CAD) was the worst-performing primary currency, losing 9 per cent against the USD and marking the largest monthly losses since the height of the financial crisis,” Ms. Sutton said in the new report, referring to the U.S. dollar by its symbol.

“We are likely to see ongoing weakness in 2015, with a substantial year-over-year depreciation,” she added.

In the current environment the most important factors for CAD are oil prices, the domestic outlook and

the broad USD trend.”

She’s obviously not alone, though the projections differ by a penny or two. Or even more in some cases.

Morgan Stanley, for example, projected in its latest outlook that the currency will dive to just above 71 cents by the end of next year.

Others are higher. Senior currency strategist Greg Moore of RBC Dominion Securities, for example, expects it the loonie to fall to 75 cents by mid-2015, and then perk up somewhat.

And CIBC World Markets sees it falling as low as 77 cents this year, but ending next year at 81 cents.

Oil, too, is expected to remain depressed.

The U.S. stockpile report, for example, was far higher than the 3.7-million barrel rise markets had projected.

“Globally, the supply glut appears to be growing, as preliminary estimates suggest OPEC output jumped to 30.9 million barrels per day in January - up from 30.5 [million barrels per day] in December and far exceeding the 30 million [barrel-per-day] quota - driven by increases in Iraq and Saudi Arabia,” said economist Dina Ignjatovic of Toronto-Dominion Bank.

“Over all, we expect the supply-demand imbalance to grow in the first half of the year, before beginning to narrow thereafter,” she added.

“As such, there is likely more downside in store for oil prices over the next six months. We continue to expect [West Texas Intermediate] prices to trade below US$50 per barrel in the near term, before beginning a slow recovery in the second half of the year and into 2016.”

The ripple effect
Behind the decision by Mars Inc. to shut down its Toronto Wrigley plant lies a basic fact: We’re chewing less gum in North America.

It’s interesting, if often sad, to study the ripple effects of changes in our habits and tastes, but that’s why the factory is closing next year after more than a half-century in operation, at a cost of 383 jobs.

Most of the gum produced in Toronto is for the U.S. market, and that’s where the Canadian jobs will move.

Mars, a candy giant, has other plants in Canada that aren’t affected.

Two big players, Wrigley and Cadbury, basically account for Canada’s gum industry, which has seen its sales suffer both here and in the United States.

“Factors like enhanced availability of coffee drinks, energy drinks, and more choices in snacks in adjacent areas and those including digital apps, mobile games, and music downloads in relatively distant areas are all competing for consumers, particularly teens and students, the main target consumer group,” Euromonitor International, a global research firm, said in its latest report on Canada.

In the United States, according to the group, there’s still a hangover from the recession and financial crisis.

“Starting in 2010, just following the conclusion of the recession, gum sales began to decline and have yet to find growth since that year,” Euromonitor said in a more recent report on the American market.

“Some of this trend stems from the post-recession mindset of consumers in which gum is viewed as a strictly unnecessary expense,” it added.

“Moreover, consumers who would typically use gum as a breath freshener are increasingly turning to power mints due to the increasing efficacy of this product as well as the fact that mints can be swallowed and do not require to be spat out later.”

Candy companies have tried to boost the market, but have been unsuccessful.

There’s also the issue of parents watching out for their kids, Euromonitor said in a forecast out to 2019.

“Much of this decline will continue to come from bubble gum and sugarized gum, which parents increasingly see as detrimental to their children’s health,” it noted.

“Furthermore, sugar-free gum, which was previously able to help mitigate sales declines in bubble and sugarized gum, is likely to continue facing deep declines due to ongoing consumer apathy.”

Euromonitor expects gum sales to fall in Canada at an annual pace of 1 per cent over the next five years, to $480-million and 15,000 tonnes in 2019.

(For trivia buffs, sales by flavour rank like this: Mint, fruit, spearmint, peppermint and Cinnamon. In the United States, it looks like this: Mint, spearmint, peppermint, berry, citrus, mixed fruits, wintergreen and cinnamon.)

Chewing gum, by the way, has a fascinating history.

Our prehistoric ancestors, according to the International Chewing Gum Association, chewed tree resin.

Gum as a commercial enterprise came in 1848, and in the late 1800s found their way into vending machines.

Bubble gum first appeared in 1906, and cards began appearing in packages in the 1930s.

The industry boomed between 1940 and 1960, with sugar-free versions introduced in the 1950s.

Staples, Office Depot in deal
Two of America’s big office supply companies are joining forces.

Staples Inc. today struck a $6.3-billion (U.S.) cash-and-stock deal for rival Office Depot Inc., which they say values  the stock of the later at $11.

Under the deal, which Staples chief executive officer Ron Sargent called a “transformational acquisition,” Office Depot shareholders would get $7.25 cash and 0.2188 of a Staples share.

“We expect to recognize at least $1 billion of synergies as we aggressively reduce global expenses and optimize our retail footprint,” Mr. Sargent said in a statement.

Not to be left out
China’s central bank has joined a global rush to ease policy, cutting the required reserve ratio for commercial banks one-half of a percentage point.

Some observers see today’s cut by the People’s Bank of China as a shot in a global currency war, but others rule that out, linking it more to a broader economic move.

And, hey, everyone else is doing it, so why not Beijing?

“Today’s required reserve ratio cut is primarily a signal that the People’s Bank is maintaining the more accommodative stance adopted in November rather than a response to capital outflows or ‘currency wars,’” said Mark Williams, the chief Asia economist at Capital Economics.

“The next policy steps will depend in part on how China’s equity markets respond to the move.”

Petrobras CEO out
The widening bribery scandal at Brazil’s parastatal energy giant Petrobras has claimed its highest profile victim yet, with the resignation of chief executive Maria das Gracas Foster, The Globe and Mail's Stephanie Nolen reports from Rio de Janeiro.

Ms. Foster and five executive directors have now resigned from Petrobras, the company said today, adding it will meet Friday to select new members of its executive board.

Brazilian police are investigating a fraud estimated to be worth billions of dollars, in which senior managers at companies such as Odebrecht allegedly paid off Petrobras directors in order to obtain contracts with the company. Police say 232 companies are on their list for investigation, and 86 people have so far been charged.

The scandal predates Ms. Foster’s time at the helm of Petrobras but she has been widely criticized for failing to handle the scandal transparently or provide a new sense of leadership.

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