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Business Briefing Canadian dollar shows some short-lived grit, but here’s where it may be headed

Briefing highlights

  • Canadian dollar shows some grit
  • Markets at a glance
  • What to expect in Quebec budget
  • Prepare for no-deal Brexit, BoE tells firms
  • From today’s Globe and Mail

Grit

The Canadian dollar showed some short-lived grit after a dovish Federal Reserve sent ripples through currency markets Wednesday.

But hold that thought. It’s back down today, and observers think it’s headed lower, still.

First, look at what happened Wednesday afternoon when the U.S. central bank held its benchmark steady, as expected, and individual projections from Fed officials suggested no further rate hikes this year, and perhaps just one more in 2020.

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The Fed also trimmed its projection for economic growth and inflation this year.

The U.S. dollar took a hit, and the loonie responded by bouncing higher, though it came down from those heights.

“The market interpreted [yesterday’s] Fed release and press conference as dovish,” said Bipan Rai, North America head of foreign exchange strategy at CIBC World Markets.

“Given the large net long position in the USD, it was broadly sold, and some of that did benefit the loonie.”

Here’s the hold-that-thought part:

“Still, we haven’t amended our strategic view to be bearish CAD,” Mr. Rai said, referring to the Canadian dollar by its symbol.

“We’re still anticipating a move to the 1.3600-1.3800 in the quarters to come.”

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Those numbers translate to a loonie worth between 72.5 and 73.5 US cents.

Other forecasters have also suggested the Canadian dollar will sink going forward amid the country’s declining economic fortunes and a Bank of Canada that has no plans to raise its key rate any time soon, a move that would be currency-friendly.

On a longer-term basis, Bank of Nova Scotia strategists forecast this week that the Canadian dollar should strengthen to above 81 US cents by the end of next year.

“The broad conclusion here is that the USD looks – by various measures – somewhat overvalued versus the CAD and should soften in the medium to longer run,” chief foreign exchange strategist Shaun Osborne and currency strategist Eric Theoret said in their report.

"Many things will influence the USD’s longer-run performance but our valuation work and studies leave us comfortable with our longer run view on the USD’s likely trend.”

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Markets at a glance

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What to watch for today

Quebeckers get their budget from Finance Minister Éric Girard

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"The budget is likely to confirm several initiatives included in the CAQ electoral platform, ultimately targeting stronger long-term economic potential," said Laurentian Bank Securities chief economist Sébastien Lavoie and economist Dominique Lapointe.

"Among those, we note [pre-kindergarten] classes for four-year-old kids and more generous tax incentives to retain older cohorts in the labour market," they added in a lookahead.

"We also anticipate better access to French- language training and additional resources for immigrants."

Keep an eye on shares of Nike Inc. as it reports quarterly results after what CMC’s Mr. Hewson called “some rather high-profile equipment failures” related to basketball shoes.

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From today’s Globe and Mail
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