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U.S. dollar winning 'race to the bottom' amid rising tensions Add to ...

These are stories Report on Business is following Wednesday, Oct. 11, 2012.

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The 'race to the bottom'
London’s CMC Markets cuts to the chase in a report that says the U.S. dollar is winning “the race to the bottom,” pushing investors into stocks and gold.

It all has to do with the stimulative asset-buying measures launched by the Federal Reserve – the latest has been dubbed QE3 to mark the third round of quantitative easing – that are aimed at juicing the U.S. recovery but at the same time weigh on the U.S. dollar.

Britain’s pound and the euro have all gained ground against the greenback, but those gains have been “much more modest” compared to the Canadian, Australian and New Zealand currencies, David Land, head of analysis at CMC Markets, said he a recent report.

“The ‘race to the bottom’ for currencies is being won by the USD,” Mr. Land said, referring to the U.S. dollar by its symbol.

“Quantitative easing packages have the world expecting long term weakness in USD and are looking to park money in equity markets and gold.”

Countries such as Japan, Sweden and Switzerland are all complaining about the impact of the strength of their currencies, and, noted senior currency strategist Camilla Sutton of Bank of Nova Scotia, the world is moving into another round of currency tensions.

"For the first time in four sessions, traders are adding risk into portfolios," Ms. Sutton said today.

"There has not been a single catalyst, however central bank policy remains the key focus ... with the Fed defending QE, Japan and Switzerland defending their stance on strong currencies, all helping to revive undertones of currency wars."

The U.S. dollar, of course, has moved up and down depending on the risk appetite of the world’s investors, and there’s plenty more of that ahead.

As Michael Gregory and Benjamin Reitzes of BMO Nesbitt Burns noted, the greenback reached a 22-month high in the last couple of weeks of July, but reversed course and slipped more than 5 per cent to a 10-month trough by mid-September.

“It was a surprise to see the trade-weighted unit appreciate in the wake of the Fed’s announcement,” they said.

“However, the dollar resumed its downtrend through early October,” they added in a report this week.

“Looking ahead, the risk landscape remains dotted with the euro area crisis, China’s slowdown, crude oil geopolitics and the U.S. ‘fiscal cliff’ (all good for the greenback). And, the Fed is expected to expand QE3 to start the year (bad for the dollar).”

Taken together, they said, it all adds up to a “flat profile” for the U.S. currency absent a fiscal blowup this winter. That would mean a short-lived spike in the dollar, though they expect to see a “credible” deficit plan, which would move the trend down again.

By the second half of next year, though, the U.S. currency should be on the rise again.

Trade deficit narrows
Canada’s trade deficit narrowed to $1.3-billion in August, shrinking from July’s record $2.5-billion as a drop in imports outpaced a marginal decline in exports.

Imports to Canada slipped 3.1 per cent, Statistics Canada said today, while exports dipped just 0.1 per cent on higher volumes, though generally lower prices.

“The largest decline occurred in exports of industrial goods and materials, while exports of energy products increased after six consecutive months,” the agency said.

In trade with Canada’s biggest trading partner, exports to the United States climbed 1.4 per cent, while American imports dipped 4.3 per cent, boosting Canada’s surplus to $3.5-billion from $2-billion.

Exports to Japan were hit, though, falling almost 20 per cent, helping to push over all exports to countries other than the U.S. down by almost 4 per cent.

Soft bank said in talks for Sprint
Shares of Sprint Nextel Corp. are surging in pre-market action today on reports that America’s third-biggest telecom could soon be snapped up by Japan’s Softbank Corp.

News organizations such as the Wall Street Journal and Reuters report that Softbank is in talks for a majority stake in Spring that could be worth almost $13-billion (U.S.).

Reports in Japan suggest an acquisition would give Softbank the ability to get mobile gadgets at lower prices.

Canadians back oil sands
A majority of Canadians support oil sands development so long as continuous efforts are made to limit its environmental impact, says a new poll commissioned by a conservative think tank.

When presented with a list of oil industry arguments for the environmentally friendly aspects of oil sands production, 71 per cent of people surveyed in an online poll said “significant” efforts have been made to limit oil-sands’ environmental impact, according to Léger Marketing, The Globe and Mail's Bertrand Marotte reports.

Markets on rise
Investors are setting aside the latest troubling developments in the euro zone – another day, another downgrade – and pushing stocks higher so far this morning.

While some Asian markets slipped – Tokyo’s Nikkei lost 0.6 per cent – European markets are climbing and New York appears headed for a stronger open.

London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were up by between 0.6 per cent and 0.7 per cent by about 7:45 a.m. ET.

Dow Jones industrial average and S&P 500 futures also rose.

“The macro news of the day comes once again from Spain, who wake up to another sovereign credit downgrade, this time from Standard & Poor’s,” said sales trader Will Hedden of IG in London, referring to a move by S&P late yesterday.

“The ratings agency have lowered Spain to one notch above junk, and the news has been met with a shrug from many investors.”

Markets are also reacting to cuts to interest rates by the central banks of Brazil and South Korea, and awaiting trade reports in Canada and the U.S. at 8:30 a.m. ET.

Flaherty warns of euro woes
Canada’s finance minister warns today of “black boxes” in the financial system of a troubled Europe, though he did give a nod in a TV interview to the progress on the region’s debt crisis over the past year.

“Some of the European banks are in relatively good shape but there are some which are in need of recapitalization,” Mr. Flaherty told Bloomberg Television after he and his G7 colleagues met in Tokyo.

“We know there is some weakness in some banks but we don’t have much more information than that. There are some black boxes they need to open.”

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