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Governor of the Bank of Canada, Stephen Poloz. (ADRIAN WYLD/THE CANADIAN PRESS)
Governor of the Bank of Canada, Stephen Poloz. (ADRIAN WYLD/THE CANADIAN PRESS)

Business Briefing

Bank of Canada 'slaps' down Canadian dollar Add to ...

These are stories Report on Business is following Wednesday, June 4, 2014.

Follow Michael Babad and The Globe's Business Briefing on Twitter.

Loonie dips
The Bank of Canada helped send the Canadian dollar lower again today as it highlighted the benefit of a weaker currency and cited the potential risks ahead.

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As The Globe and Mail’s Barrie McKenna reports, the central bank under Governor Stephen Poloz held its neutral stance, giving no signal as to where its benchmark interest rate could be headed, or when.

As expected, it held the key overnight rate at just 1 per cent.

“Global economic growth in the first quarter of 2014 was weaker than anticipated in the [monetary policy report] and recent developments give slightly greater weight to downside risks,” the Bank of Canada said.

“The U.S. economy is rebounding after a pause in the first quarter, but there could be slightly less underlying momentum than previously expected.”

It did note a faster-than-expected rise in inflation, but said that was because of temporary factors, such as higher energy prices.

So called-core inflation, which strips out volatile items, is still “significantly below” its target.

The central bank noted that the economy expanded at a modest pace in the first quarter of the year - by just 1.2 per cent at a annual rate - notably because of the weather.

But it’s still counting on a boost in exports to feed the recovery. And it was careful not to say anything that would drive up the loonie, as Canada’s dollar coin is known, because it’s comfortable with a weaker currency that would help push trade.

“The ingredients for a pickup in exports remain in place, including the lower Canadian dollar and an anticipated strengthening of foreign demand,” it said.

The loonie had been as high as about 91.7 cents, but began to slip in anticipation of the announcement, to 91.5 cents. In the wake of the statement, it dipped further to 91.3 cents, and by late in the day stood at 91.4 cents.

Before today, the currency had been hovering around the 92-cent level, having moved up recently.

The statement, over all, was balanced, citing both the rise in inflation and the threats to the economy.

“It could have been expected that downside interest rates moves were taken off the table but this is not the case,” said Rahim Madhavji of Knightsbridge Foreign Exchange.

“The Canadian dollar fell lower on the Bank of Canada continuing to harp a tone of we’re still nowhere close to raising interest rates,” he added in a research note titled “Bank of Canada slaps loonie lower.”

“It seems that the Bank of Canada is quite content with the lower Canadian dollar boosting exports and assisting with inflation.  Today’s BoC statement removes any catalyst for loonie bulls in the near term.”

Some economists believe the Bank of Canada may well lag the Federal Reserve in eventually hiking its benchmark rate from the current 1 per cent.

“Given our forecast for improving Canadian growth and a weakening C$ over the next year, we’re sticking with our call for the bank and the Fed to hike rates for the next/first time in July 2015,” said senior economist Benjamin Reitzes of BMO Nesbitt Burns.

“An earlier rate hike should not be ruled out, but only if inflation forces the bank’s hand and the loonie isn’t meaningfully stronger than current levels,” he added.

“However, if the currency stays around current levels or better, there’s a solid chance Governor Poloz will choose to lag the Fed by a few months in an effort to weaken the loonie and provide a boost to exports.”

Wright heads back to Onex
Nigel Wright is expected to rejoin buyout firm Onex Corp. this month after a police investigation cleared him of wrongdoing in a Canadian Senate scandal, Streetwise columnist Boyd Erman writes.

Mr. Wright was "100 per cent exonerated by as thorough an investigation as humanly possible," said Onex chief executive officer Gerald Schwartz, and now he "will pick up where he left off, doing what he does so well."

Before leaving Onex in 2011 to become Prime Minister Stephen Harper's chief of staff, Mr. Wright was one of the most senior executives at Mr. Schwartz's company.

Canada posts deficit
Canada posted a surprise trade deficit of $638-million in April, driving home the central bank’s concerns over exports.

Canadian exports tumbled by 1.8 per cent, Statistics Canada said today, while imports rose 1.4 per cent, leading to the shortfall that compared to a March surprlus of $766-million.

Export volumes declined by 0.8 per cent, while prices slipped 1 per cent, for a level of $42.8-billion. The drop was led by energy and metal exports, while gains were led by forestry products after the end of a Vancouver port strike. Imports, in turn, now stand at a record high of $43.5-billion, with volumes climbing 1.9 per cent in April and prices actually slipping by 0.4 per cent.

Economists noted that the trade picture isn’t as bad as it might otherwise appear, given the impact of energy exports.

“The deterioration in the April trade balance is disappointing, particularly given the decline in exports that occurred despite expectations for an improvement as weather-related transportation disruptions related to the colder-than-normal winter were expected to ease,” said Nathan Janzen of Royal Bank of Canada.

“With that said, much of the export weakness was concentrated in lower energy, and particular natural gas, exports as an easing in the cold weather may have also contributed to lower demand for home heating. Excluding the energy sector, exports increased for a third consecutive month, climbing 1.5 per cent in April to build on 1.2-per-cent and 3.3-per-cent increases in March and February, respectively.”

The U.S. trade deficit, meanwhile, widened.

Husky confident
Husky Energy Inc. says it's confident of meeting the five-year targets it established in late 2012.

This year alone, Husky said today, production is poised to reach its earlier forecast of between 330,000 and 355,000 barrels of oil equivalent a day, up from last year’s 312,000.

Capital spending is projected at some $5-billion for 2014.

“In 2010 our portfolio essentially consisted of five projects, heavily weighted towards the long term,” chief executive officer Asim Ghosh said in a statement in advance of the company’s Investor Day.

“Since that time, we have drilled into our portfolio to bring forward a steady pipeline of high return, long-life projects that give us significant flexibility in how we can shape and time our growth.”

Husky expects to be at between 385,000 and 440,000 barrels a day in 2017.

Toronto housing market rebounds
After a slow start to the spring market, Toronto’s home sales bounced back last month, setting a record for May, The Globe and Mail's Tara Perkins reports.

The number of existing homes that changed hands in the Toronto area came in 11.4-per-cent higher than a year earlier, and set a new high for the month of May, the Toronto Real Estate Board said today.

That comes after April’s sales nudged up just 1.8 per cent from a year earlier, with many industry professionals saying that bad weather was causing potential buyers to hibernate.

The average selling price last month was $585,204, up 8.3 per cent from $540,544 in May 2013.

The average selling price of a detached home in the downtown area covered by the 416 area code was $943,055. For detached homes in the suburbs it was $648,439. Condos in the 416 area, in contrast, sold on average for $401,809. Condos in the regions surrounding the city had an average selling price of $307,307.

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