Short positions cut
Speculators are scrambling to cover their bets against the Canadian dollar and a host of other currencies.
It’s really a wait-and-see move that’s linked to the U.S. dollar, however.
According to the latest numbers from the U.S. Commodity Futures Trading Commission, currency speculators cut their net short positions against the loonie by about half, to just $835-million (U.S.).
They also trimmed their bets against the Australian dollar, the British pound and the euro in what was largely a short-covering move.
It was aimed at paring short positions while markets wait for numbers that are expected to show a stronger U.S. economy emerging in the current quarter, after a more lame first three months of the year.
The numbers from the CFTC report were calculated last Tuesday, though released Friday, so they came before the latest U.S. jobs report.
The Canadian dollar has gained of late, buoyed by stronger oil prices, a weaker U.S. currency and a more upbeat Bank of Canada.
Some analysts see the loonie rising before sliding again. Today, it's hovering around the 83-cent mark.
Playing into all this, too, of course, are the different paths of the Canadian and U.S. central banks.
In its latest forecast, BMO Nesbitt Burns suggested that the Bank of Canada will hold its key rate at 0.75 per cent until July of next year.
Which means Canada’s central bank will lag the Federal Reserve in starting to bring rates back to normal.
And which in turn means that the Canadian dollar should tumble again.
“While Fed tightening will likely haul the currency back below 80 cents in the fall, tailwinds should appear next year,” senior economist Sal Guatieri said in the BMO forecast.
“The currency, which is arguably close to fair value on a purchasing power parity basis, is expected to rise to 85 cents U.S. by late 2016 amid higher oil prices and central bank tightening.”
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First quarter was 'low point'
Canada’s oil provinces will be slammed this year, with a full-on recession in Newfoundland and Labrador, BMO Nesbitt Burns warns in a new outlook.
The oil shock will cut about one half of a percentage point from economic growth across the country, “hammering the three oil-rich provinces the hardest,” BMO's Mr. Guatieri said in his new forecast.
The good news is that the first quarter of the year should prove to be the “low point” for Canada, with the economy probably having contracted, but with a rebound of 2 per cent for the rest of the year and “slightly faster” in 2016 as crude prices rally and U.S. activity perks up.
Other provinces should fare better amid lower fuel costs and a weaker Canadian dollar, with British Columbia and Ontario leading the nation.
“Facing severe fiscal restraint, Newfoundland and Labrador will slip into recession, and Alberta will do well to avoid one,” Mr. Guatieri said.
“Saskatchewan’s growth is expected to slow to 1 per cent, the weakest since the recession.”
BMO projected Canadian economic growth of 1.7 per cent this year, and 2.2 per cent in 2016.Unemployment, in turn, was forecast to hold stubbornly at 6.8 per cent this year, and 6.6 per cent next year.
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What to watch for this week
It’s not shaping up to be quite as exciting as last week, but there are still some key events to watch for.
On Wednesday, we’ll get a reading on U.S. retail sales. And on Friday, a reading on Canadian manufacturing shipments.
And feeding our national obsession, this week brings two fresh measures of the housing market.
The Teranet-National Bank home price index will be released Thursday, and the Canadian Real Estate Association’s April report a day later.
As The Globe and Mail’s Tamsin McMahon reports, this week’s numbers should underscore Canada’s two-speed market: Toronto and Vancouver, and everywhere else.
“Canadian existing home sales likely rose 8 per cent year-over-year in the month, while average prices are expected to post a solid 6.5-per-cent year-over-year increase,” said senior economist Robert Kavcic of BMO Nesbitt Burns.
On the earnings front, first-quarter reporting season is winding down, but there are still some biggies to come, including Air Canada, Encana, Rona, Gildan, Power Corp. and Power Financial, and Onex.