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Canadian dollar dips below 90¢; analyst ponders whether Poloz move is a ‘bluff’

These are stories Report on Business is following Monday, Jan. 27, 2014.

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Loonie slips
The Canadian dollar sank today to a shade under 90 cents (U.S.) amid general angst related to the currency.

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Currency markets have been buffeted by the turmoil in emerging markets. But, said chief currency strategist Camilla Sutton of Bank of Nova Scotia, the troubles with Canada's currency weren't really part of that.

There would be far broader movements were that the case, she said.

The loonie, as Canada's dollar coin is known, has been taking it on the chin for months, sinking rapidly this month alone on soft economic data and a Bank of Canada that's seen as dovish and is leaving the door open to an interest rate cut, though few observers see that happening.

"The further dovish tilt on rates by the BoC is probably a 'bluff,' as key fundamentals don't support a rate cut yet," Stephen Gallo, Bank of Montreal's European chief of foreign exchange strategy, said on Friday.

"Despite the existence of 'the bluff,' we do not favour 'fighting the BoC' by betting against a weaker CAD now," he added, referring to the currency by its symbol.

"The BoC basically has multiple layers of 'ammunition at its disposal for keeping the CAD weak. It also has the 'element of surprise' on its side."

The loonie slipped today to 89.95 cents U.S. at one point, and was still below the 90-cent mark late in the day.

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At the same time, speculative bets against the currency are continuing to build.

The latest report from the U.S. Commodity Futures Trading Commission shows short positions in the loonie climbing to $6.4-billion last week, still shy of the $7.4-billion peak last spring, but still growing.

Apple sinks
Shares of Apple Inc. sank in after-hours action today after the tech giant posted a generally flat first-quarter profit, though one that topped the estimates of analysts.

The stock was down by almost 6 per cent as the company also projected second-quarter results.

Apple sold 51 million iPhones in its first quarter, below what Reuters said was the 55 million forecast by analysts.

It earned $13.1-billion or $14.50 a share in the quarter, compared to $13.1-billion or $13.81 a year earlier.

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Revenue climbed to a record $57.6-billion from $54.5-billion.

For the second quarter, Apple projected revenue of between $42-billion and $44-billion.

Chief executive officer Tim Cook said he was pleased with sales of iPhone and iPad products, and with other elements of the company's performance.

Emerging market waters were somewhat calmer today, but observers fear more turmoil after a respite.

Indeed, warns Kit Juckes, the chief of foreign exchange at Société Générale, financial markets are grappling with "wildfires on four continents."

Key will be whether the Federal Reserve decides whether to pare its monthly purchases of assets again, as expected.

The U.S. central bank has already cut the bond-buying stimulus program, known as quantitative easing or QE, by $10-billion (U.S.) to $75-billion.

And analysts expect it to unveil a further $10-billion "taper" in Wednesday's policy announcement.

"And that won't help ease market tension," Mr. Juckes said today.

"Market confident crises don't often just blow over quickly on their own without policy action."

Emerging market currencies have been sideswiped by concerns over how the Fed tapering program will hurt those economies, also sparking a rout on global stocks.

This morning, however, Turkey's central bank helped ease the troubles by announcing plans for an emergency meeting tomorrow, a move that propped up the country's embattled lira and supported other emerging markets, as well.

But, Mr. Juckes noted, there's more than just the Fed speculation going on here.

"Absent help from the Fed, and in the run-up to the Chinese New Year, any respite will probably be temporary," he said.

"Furthermore, the current period of market turmoil may have slower EM growth and the prospect of less accommodative Fed policy at its heart, but it has a log of regional sub-drivers: China's shadow banking system, politics in Turkey, strikes in South Africa, more politics in Argentina, to name but a few," he added.

"There are too many fires burning to expect them to all blow out simultaneously."

Others agree that, longer term, there are so many factors playing into the market that analysts are raising some red flags going forward.

"The extent of Friday's stock market falls would also seem to suggest that there could be further declines in the coming days and weeks, which would be somewhat ironic given that we are now seeing some significant improvements in a lot of the economic data not only coming out of the U.S. and the U.K., but also Europe as well," said chief analyst Michael Hewson of CMC Markets in London.

"The fact is that in the last 12 months, we haven't really seen a decent correction in U.S. markets, or European ones for that matter and with some doubts about valuations any nervousness on the part on investors is likely to see further volatile trading," he added.

"The irony is that the improving economic data is bringing forward future expectations of slightly higher interest rates, not only in the U.S., but the U.K. as well and it seems quite likely that if the Fed does decide to taper another $10-billion of asset purchases then the flow of funds coming out of emerging markets could well turn into a torrent, and the outgoing tide could well reveal some rather unpleasant truths, and significant side effects."

BMO eyes deal
Bank of Montreal is eyeing a $1.3-billion acquisition of British fund firm F&C Asset Management, with the two parties already in "advanced discussions," The Globe and Mail's Tim Kiladze reports.

F&C said today it received an indicative offer from BMO, adding that the Canadian bank is likely to put in a firm bid worth 120 pence per share, and pay in cash.

Should a deal be inked, it will add to a growing list of asset management deals Canadian banks recently struck outside their home country. Since 2010 the list of acquisitions include: Royal Bank of Canada buying London's BlueBay Asset Management; Toronto-Dominion Bank buying Epoch Holding Corp. in the U.S.; and Canadian Imperial Bank of Commerce buying a 41 per cent stake in American Century Investments from JP Morgan Chase & Co.

Saks to open in downtown Toronto
Hudson's Bay Co. is selling its flagship Queen Street store in downtown Toronto along with its adjacent office tower for $650-million, with plans to open its first Saks store at the site, The Globe and Mail's Marina Strauss reports.

HBC announced today that it's selling the two properties to Cadillac Fairview Corp. and launching its first Saks store at the location, scuttling earlier plans to open its first Saks at Yonge and Bloor Street in Toronto, where it was slated to replace a Bay outlet.

HBC chief executive officer Richard Baker said in a brief interview that Cadillac Fairview CEO John Sullivan convinced him to roll out Saks at the Queen Street store, where it will share space with the Bay.

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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