When you're down this low
To twist an old saying, when you're down so low, sometimes the only way to go is up.
Which is how Kit Juckes sees the loonie in 2016.
The Société Générale strategist looked at the fortunes of major currencies last year, noting the gains of the Swiss franc and the U.S. dollar, in particular, and then the rest of the bunch.
The British pound, he found, was "fading fast on a trade-weighted basis," while the Japanese yen and Swedish krona were picking up steam as the year was winding down.
Norway's krone, the euro and the New Zealand and Australian dollars were"all in a bunch (of mediocrity) above the Canadian dollar.”
This chart from Mr. Juckes shows how, from left to right by currency symbol, the pound, U.S. dollar, yen, euro, loonie, franc, krona, Australian dollar, krone and New Zealand dollar fared last year.
It all puts the loonie in perspective amid the collapse in oil prices and the diverging paths of the Federal Reserve and the Bank of Canada, the two things most weighing on the currency.
"After that kind of underperformance, it's no wonder that the Canadian dollar looms so appealing to me for next year," Mr. Juckes said as 2015 was closing out.
"It'll need oil prices to stabilize but in due course it's going to make some kind of recovery."
Other analysts also expect the loonie to pick up steam this year, though not before falling a bit further from its current level just below 72 cents U.S.
For the record, 2015 was the second-worst ever for the loonie, which started the year at 86 cents.
That means it’s “hard to imagine 2016 will be anywhere near as challenging,” said BMO Nesbitt Burns senior economist Benjamin Reitzes.
“The simple answer is that the loonie’s trajectory will depend on oil,” Mr. Reitzes said in a research note today.
“The near term for oil remains murky, but low prices will eventually prompt a pullback in supply,” he added.
“The question is when. We’re looking for oil to end this year at $49, suggesting the loonie will end the year firmer, but there’s a long way to go between now and then.”
A Downton Abbey scene I'd love to see ...
“We put the entire family fortune into loonies.”
How do you like 2016 so far?
Global markets plunged today after Chinese stocks tumbled on a poor economic reading.
The Shanghai composite shed almost 7 per cent on a weak manufacturing purchasing managers index, sending other markets tumbling as well.
“The root of today’s market hysteria was no doubt borne in China, where stocks fell 7 per cent, causing trading to halt under a new ‘circuit-breaker’ mechanism,” said IG market analysts Joshua Mahony.
“While the Caixin manufacturing PMI reading pointed towards continued weakness in the sector, today’s selloff is as likely to be reflecting the expected reaction to the impending end of a six-month lockup period for institutional investors share sales,” he added.
“Unfortunately for Chinese regulators, they seem to be learning slowly that less is often better than more when it comes to controlling the stock market.”
Quote of the day
“At this time of year, I don’t think it’s wise to go out without an umbrella or a long yen position.”
Kit Juckes
‘Declaration of Independence’
You tend to get a lot of colourful comments in the midst of a hostile takeover.
But Canadian Oil Sands may have taken things to a new level with its “Declaration of Independence” today.
COS, trying to fend off Suncor Energy, whose hostile bid expires Jan. 8, used that in the title of a statement urging shareholders to stay the course.
“Suncor’s sustantially undervalued bid is set to lapse, and when it does they say they will walk away,” COS said.
“Your board, with the help of external legal and financial advisors, has considered a full range of alternatives against the Suncor offer, including a full or partial sale to other parties, and a royalty financing. Those alternatives deliver substantially lower risk-adjusted value than the existing assets. Independence is, by far, the better decision.”
What to watch for this week
Statistics Canada kicks off the year with a couple of major economic readings, notably its widely watched jobs report.
First, on Wednesday, the agency reports on November's trade deficit, which National Bank economists expect to come in at about $3.3-billion.
"The merchandise trade balance may have deteriorated further due to unfavourable prices," they said in a lookahead.
Friday brings the monthly jobs report, and you just never know what that's going to show.
National Bank believes the reading will show that a net 10,000 jobs were created in December, with the unemployment rate holding at 7.1 per cent.
"The services sector in particular, which just saw the largest monthly employment drop on records, should bounce back," it said.
"And here we’re expecting decent gains in sectors such as finance, insurance and real estate as well as food and accommodation services after outsized declines earlier," it added.
"In sharp contrast, the goods sector could see employment fall after big gains in the prior month particularly in manufacturing and construction. And with energy prices remaining depressed, it’s difficult to see a quick recovery in employment in resources."
The U.S. jobs report will be released the same day, and about 200,000 net new jobs are expected.