Here's Allan Robinson's At The Bell which you'll find in Friday's newspaper:
The Canadian economy is cooling down and the employment data scheduled for release today are expected to show new jobs continue to be created, although at a much slower pace.
As a result, domestic interest rates are headed lower, but the Canadian dollar should remain at close to par with the U.S. dollar, strategists say.
WHAT TO KEEP AN EYE ON
The number of new jobs is expected to decline to 10,000 in April from 14,600 in March, according to a survey of economists by Bloomberg. The unemployment rate is expected to hold steady at 6 per cent.
During the past year, the domestic economy has created 325,000 new jobs or a monthly average of almost 27,100.
“After finally losing some momentum in March, we also look for average hourly wages to slow a bit further, easing to a 4.5 per cent year-over-year pace [in April], down from [a recent] high of 4.9 per cent around the turn of the year,” said Douglas Porter, deputy chief economist with BMO Nesbitt Burns Inc.
“The Bank of Canada is responding to weakening inflation pressures and slower growth,” said Paresh Upadhyaya, senior vice-president and currency portfolio manager for Putnam Investments. “The [U.S. Federal Reserve Board] appears to be in a holding pattern looking to scrutinize the data, while the Bank of Canada appears ready to act and make a cut or two.”
HOW WILL THE MARKET REACT?
The narrowing of the interest differential between the United States and Canada could result in a weaker loonie, Mr. Upadhyaya said. “I'm not looking for a major depreciation,” he cautioned. The loonie traded at 98.5 cents (U.S.) yesterday.
The dollar has been trading in a narrow range of range of 98 cents to $1.03 since November and this is during a period in which commodity prices soared, said Mark Chandler, the head of North American fixed-income and currency strategy for RBC Dominion Securities Inc. The Canadian dollar is back to fair value and it is not overvalued, he said.
RBC is looking for the Bank of Canada to lower the target overnight bank rate by one-quarter of a percentage point to 2.75 per cent, but then go on hold given the relative strength of the economy. It expects the Fed will be back into rate-cutting mode in the fourth quarter after the temporary effects of the tax stimulus wear off. RBC forecasts the Fed could cut the federal funds rate another half percentage point.
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