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Canadian dollar seen sinking to 85¢: Trend ‘too strong to fight’ Add to ...

These are stories Report on Business is following Thursday, Jan. 30, 2014.

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Loonie slips
The Canadian dollar touched a new recent low this morning amid a general trend that's "too strong to fight."

The loonie, as the country’s dollar coin is known, slipped to 89.3 cents U.S. around midnight, regaining some ground later to sit at 89.5 cents by late morning.

The loonie was not reacting to yesterday’s decision by the Federal Reserve to further trim its bond-buying program, but rather just part of the general drive lower amid a host of developments, said chief currency strategist Camilla Sutton of Bank of Nova Scotia.

“The pattern suggests that there was not one single event driving CAD lower today; but that the combination of a soft HSBC Chinese PMI (49.5), EM concerns, bearish sentiment, relative monetary policy and technicals all contributed to CAD weakness,” Ms. Sutton said.

“The downward trend in CAD is too strong to fight or attempt to pick a bottom.”

Economists Craig Alexander and Leslie Preston of Toronto-Dominion Bank, meanwhile, issued a new report projecting the currency has a few cents yet to go.

"TD Economics expects that the factors which have taken the Canadian dollar lower are unlikely to shift over the next year or so," they said.

"Canada's economy is forecast to underperform the United States, interest rate hikes remain quite a ways off and the outlook for commodity prices is pretty flat, on average," they added in the study.

"In the near-term, the loonie is forecast to fall as low as 85 cents U.S. by mid-year. However, it is then expected to appreciate slightly as inflation in Canada starts increasing and the Bank of Canada gets closer to raising interest rates."

They expect to climb back to the 90-cent range in the second half of next year.

Bank of Montreal, in turn, today projected the loonie would sink to 87 cents.

This comes amid general turmoil in currency markets, and a “whacky day” yesterday, as Stephen Gallo, Bank of Montreal’s European chief of foreign exchange strategy, put it, as the currencies of emerging economies continue to suffer.

“Yesterday's [Fed] swansong for Ben Bernanke may have been the scheduled market highlight, but continued turmoil in emerging market currencies seemed destined to steal the limelight,” said Will Hedden of IG in London.

“The Fed did as asked by the market: tapered by $10-billion per month and gave U.S. markets a whipsaw final two hours, and then everyone went back to contemplating the contagion that has continued in the EM space,” he added in a research note.

“Falls for the Argentine peso, the Turkish lira and the South African rand, despite central bank efforts regarding the latter two, are the most prominent of a host of moves.”

Ontario hikes minimum wage
Ontario is boosting the Canadian province’s minimum wage for the first time in four years amid a global debate over pay levels.

Premier Kathleen Wynne today unveiled the hike to $11 an hour from $10.25, and plans to link future increases to inflation, The Globe and Mail’s Adrian Morrow reports.

Minimum wage hikes are a thorn in the side of small businesses, in particular, which say they kill jobs.

But Ms. Wynne said her government must “balance the needs of small businesses … with the needs of people to have a living wage.

U.S. economy turns in decent quarter
The U.S. economy grew at an annual rate of 3.2 per cent in the fourth quarter, a relatively strong figure that supports the growing view that America is due for a good 2014, our Washington correspondent Kevin Carmichael reports.

Most analysts on Wall Street called the 3.2-per-cent reading, the first of three government estimates that was released by the Commerce Department today. Gross domestic product advanced at an annual rate of 4.1 per cent in the third quarter.

The U.S. now has put together one its strongest periods of growth since the financial crisis. The report reinforces the Federal Reserve’s decision to begin slowly reducing its extraordinary monthly purchases of bonds, and could comfort the Bank of Canada, which is counting on the U.S. economy to pull Canadian exporters out of their doldrums.

Potash sinks
Shares of Potash Corp. of Saskatchewan sank today after a somewhat disappointing fourth-quarter report.

As The Globe and Mail’s Rachelle Younglai reports, the potash giant’s fourth-quarter profit sank by 46 per cent, hit by costs from job cuts and lower prices in the wake of the collapse of a Russian cartel.

Potash Corp.’s profit slipped in the quarter to $230-million (U.S.), or 26 cents a share, from $421-million or 48 cents a year earlier.

“Pricing headwinds - most notably in potash - weighed on our performance, although there were signs as the quarter came to a close that the uncertainty in global markets was beginning to abate,” said chief executive officer Bill Doyle.

The company also forecast first-quarter profit of between 30 cents and 35 cents a share, and $1.40 to $1.80 for the year.

“Even as 2014 begins with a more tempered outlook for crop commodity prices, we believe the fundamental drivers of fertilizer demand remain supportive,” the company said.

“Record crop production in 2013 has led to a significant agronomic need to replenish essential soil nutrients. We expect farmers, especially those in more developed agricultural economies, will strive to increase their soil productivity in order to maximize returns from each planted acre.”

Facebook surges
Facebook Inc. has certainly caught the attention of the markets again, its stock surging today after its earnings late yesterday.

The social network posted a hefty jump in fourth-quarter revenue, particularly where mobile advertising is concerned, and an increase in profit to $523-million (U.S.), or 20 cents a share, from $64-million or 3 cents a year earlier.

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