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The eroding Canadian dollar: ‘It’s taken on a life of its own’ Add to ...

These are stories Report on Business is following Tuesday, Dec, 3, 2013.

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

Loonie to stay soft
The Canadian dollar hovered below 94 cents (U.S.) again, softness that some observers believe isn’t warranted.

At one point today, the currency touched a three-year low of 93.70 cents, but regained some ground.

As The Globe and Mail’s Richard Blackwell and Tavia Grant report, the dollar slipped below the 94-cent mark yesterday, driven lower by a “dovish” Bank of Canada and a downbeat outlook for the currency among several banks, notably Goldman Sachs Group Inc., which projects it will erode to 88 cents.

The loonie, as the dollar coin is known in Canada, has lost more than 6.5 per cent of its value.

As Camilla Sutton sees it, the loonie’s losses are outpacing economic fundamentals.

But, Bank of Nova Scotia’s chief currency strategist noted, “it’s hard to fight a trend like this.”

 Remember, for example, that just last week, Statistics Canada reported that the economy expanded at a more robust annual pace of 2.7 per cent, the fastest in about two years.

But there’s something of a herd mentality here, particularly in the run-up to tomorrow’s statement from the Bank of Canada, which isn’t expected to change policy at all but is projected to remain dovish.

Governor Stephen Poloz and his colleagues have already dropped their signal for higher interest rates, and markets will be closely watching what it has to say tomorrow.

“It’s kind of taken on a life of its own,” Ms. Sutton, who forecasts the currency will be at 92.3 cents by mid-2014, said of the loonie’s softness.

BMO Nesbitt Burns expects the drop in the dollar has a way to go, still.

“For years, we have been railing that the C$ was clearly overvalued (price gap, current account gap, typical valuation measures … due to the wave of portfolio investment washing ashore,” said BMO chief economist Douglas Porter.

“Now that the tide is receding on that front, the C$ is finally losing some serious altitude.”

But he also noted that commodity prices have declined by almost 10 per cent from their average during the summer, and cited the “sag” in Canadian oil prices in particular.

“Based on this simple relationship, one could readily argue that the sag in the loonie just compensates for the recent pullback in resource prices, and that it has more downside yet,” Mr. Porter said.

“With foreign investors now less enamored with Canada, the commodity, rate and trade fundamentals matter more,” he added in a research note.

“And they’re not especially friendly for the C$ either at this point.”

Potash cuts deep
Potash Corp. of Saskatchewan is taking a knife to its operations and its work force, with plans to cut about several hundred jobs in Canada, the United States and Trinidad.

The agricultural giant said today it will slash its work force by 18 per cent, the bulk of them in the Canadian provinces of Saskatchewan and New Brunswick, and in Florida.

At the same time, it unveiled plans to suspend, trim or halt production in various locations, The Globe and Mail's Eric Atkins reports.

The layoffs are expected to cost $70-million (U.S.) in severance costs, while the company also projected lower operating costs going forward.

The potash industry has been in turmoil for quite some time now after the breakup of a Russian cartel.

“Despite confidence in the long-term drivers of our business, a significant portion of fertilizer demand comes from developing markets where growth has been less robust than expected,” Potash Corp. said in a statement.

Markets sour
Investors have the taper blues again today.

Global markets sank as attention turns yet again to when the Federal Reserve will begin to cut back on its monthly bond purchases under a policy known as quantitative easing, or QE.

This comes in advance of some key U.S. economic readings this week, most importantly how the jobs market performed in November.

Tokyo’s Nikkei gained 0.6 per cent, but Hong Kong’s Hang Seng lost 0.5 per cent. In Europe, London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were down by between 1 per cent and 2.7 per cent by midmorning. The S&P 500, Dow Jones industrial average and Toronto's S&P/TSX composite all lost ground.

“With the last Fed meeting of the year fast approaching, investors will be keeping a close eye on any continuation of yesterday’s theme, with good numbers from the U.S. again prompting a soft close for U.S. equities as the case for an early taper builds momentum,” said senior sales trader Toby Morris of CMC Markets in London.

“You can certainly understand a bit of profit-taking in the current environment, especially in the context of 2013 gains, but the question will be if this is simply the bulls recharging for a traditional Santa rally or if they have decided to cash in and enjoy the festive season on a healthy bank balance.”

BMO posts record profit, hikes dividend
Bank of Montreal kicked off the quarterly reports of Canada's big banks with a hit and a miss today.

Propelled by solid loan growth and a strong wealth management arm, the bank ended the fiscal year on a high note, with a record annual profit of $4.3-billion, The Globe and Mail's Tim Kiladze reports.

Canada’s fourth largest lender made $1.09-billion during the fourth quarter, or $1.62 per share. The profit is just above that of the same period in 2012, but fell short of analyst expectations of $1.67 per share.

BMO hiked its quarterly dividend by 2 cents a share, to 76 cents.

Wind parent eyes rival
Wind Mobile’s parent company is taking another look at potentially purchasing struggling start-up carrier Mobilicity, The Globe and Mail's Rita Trichur reports.

Globalive Wireless Management Corp., which operates the Wind Mobile brand, confirmed today that it is participating in Mobilicity’s court-monitored sale process and “assessing the value” of its assets.

Even so, there is no guarantee that Globalive will make a binding offer for its smaller rival, which has been under court protection from creditors since late September. The two companies have attempted to merge at least twice since the 2008 spectrum auction only to have those talks sour.

MBA gender gap
Female MBA graduates in Canada are starting their careers behind their male classmates and are continuing to fall behind as the years pass, making it harder for women in advance to higher-level business positions, The Globe and Mail's Janet McFarland reports.

A new report by women’s advocacy group Catalyst shows female MBA graduates in Canada earn $8,167 per year less than their male colleagues in their first jobs after graduation, according to data on 1,574 students who graduated between 1996 and 2007.

The pay gap is far larger in Canada than internationally, where Catalyst says women MBA grads earn $4,600 less on average in their first jobs.

Rio Tinto cuts back
Rio Tinto, the mining giant that owns Montreal’s Alcan, provided more evidence that the era of massive spending on huge projects and acquisitions is over by pledging to shave billions of dollars off its capital spending budget, our European correspondent Eric Reguly writes.

The new era will see the Anglo-Australian miner focus on shareholder returns in an attempt to repair some of the damage triggered by years of overspending during the boom years, in the mistaken belief that strong global growth would propel commodity prices ever higher.

Setback for Brazil
The ‘B’ in BRIC is having its share of troubles.

Brazil’s economy contracted in the third quarter of the year by 0.5 per cent from the second quarter, official government statistics showed today.

Brazil had been one of the world’s best hopes, though of late it has struggled amid higher inflation and other economic woes.

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