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Briefing highlights

  • Why loonie investors are spooked
  • Currency seen sliding
  • Bell apologizes after data breach
  • Ford to cut jobs in North America, Asia

Absolutely loonie

Canada now faces the 2017 version of the “Diefenbuck” or the “Hudson Bay peso.”

Granted, the loonie is almost 20 cents shy of the former and a dime or so ahead of the latter, but you get the idea.

“To put this into perspective – not even the global financial crisis or the commodity shock a few years ago had investors this concerned on the CAD,” said Bipan Rai, executive director of macro strategy at CIBC World Markets, referring to the Canadian dollar by its symbol.

Mr. Rai was referring to the latest numbers from the U.S. Commodity Futures Trading Commission, which showed speculators shorting the loonie at exceptional levels.

Indeed, the report put the net short position against the currency at almost $6.3-billion (U.S.) as of a week ago. In contract terms, the net short surged to about 86,200, breaking a previous record high of 85,0000 in 2007.

“Despite what looks to be a very solid quarter of growth in the Canadian economy, the market is clearly spooked by risks to the housing sector and the degree of leveraging,” Mr. Rai said.

“We can also include broader macro and political risks in here, as well.”

Markets have been concerned about the troubles at Home Capital Inc., and what that means for mortgage financing in Canada, compounded by angst over the housing market in general, given the bubble in and around Toronto, and recent government measures to deflate it.

“We do think the market is getting a bit ahead of itself at this point,” Mr. Rai said. “Banks are well capitalized and housing risks are contained for now.

Also playing into the mood are concerns over the Trump administration’s trade agenda and policy differences between the Federal Reserve and the Bank of Canada.

The loonie did manage to perk up slightly Monday after oil bounced on Saudi Arabia and Russia calling for an extension of an OPEC production cap agreement meant to buoy prices.

But only slightly. And, for that matter, oil may well not have any lasting impact.

“The oil story is a short-term positive, but will do little to address one of the critical reasons why oil prices remain capped,” Mr. Rai said. “That being the increased supply from U.S. shale.”

Toronto-Dominion Bank strategists have an interesting take on it, looking, as they do, through a longer-term lens.

“We run the data through (what we call) sentiment indicators,” said Mark McCormick, North American head of foreign exchange strategy at TD Securities.

“It scales the data over the past year on the max/min of that range,” he added.

“The important for CAD is that it now sits at zero, indicating record shorts versus the last year. It also has the lowest score of the currencies we track, suggesting that it is the more oversold major currency.”

On that basis, there’s potential for a rebound, Mr. McCormick said, but a “macro trigger” is needed to turn sentiment around.

“Given the focus on housing, we probably need a mix of better data, a pickup in Canadian bank stocks and confirmation from the BoC (June 8 stability review) that the market is exaggerating this narrative.”

Where the loonie goes from here, of course, depends on several things. Notably market sentiment,” Mr. Rai said.

He suggests watching the charts. Should the currency rise to close above 73.66 cents (U.S.), that “would imply that this CAD rally has more room to run, and without that nothing changes.”

For speculators, it could mean they have to cover their butts.

“On the one hand, investors clearly have a pretty dim view of the CAD’s outlook,” said Mr. Osborne and Mr. Theoret.

“But on the other, the sudden surge, to a record, in bets on the CAD declining represents a classic contrarian signal, with positioning possibly saturated.”

They believe the loonie could “technically” regain some ground in the next one or two weeks, say to about 74 cents or better, but may well dip below 71.5 cents through the middle of the year.

“The focus on Home Capital’s problems certainly seems to have galvanized CAD short sellers but given the relatively narrow range that the CAD traded in in the week through May 9, the shorts got no immediate gratification and are now flat (at best) and likely underwater to some extent on the bear trades put on through the week,” the Scotiabank strategists said.

“The 'pain trade’ for the market is now a strengthening in the CAD that will force the bears to cover, driving the CAD even higher,” they added.

(For loonie buffs, the “Diefenbuck” was a phrase coined by the Liberals in the early 1960s to slam a devalued 92.5-cent currency. Little did they know what was in store, like the plunge that brought references to the “Hudson Bay peso,” when the dollar sunk as far as the low-60s early in the 2000s.)

Bell apologizes

BCE Inc.’s Bell Canada has issued an apology to customers after it said nearly 1.9 million customer e-mail addresses and 1,700 names and phone numbers were illegally accessed, The Globe and Mail’s Josh O’Kane reports.

Bell said that the attacks were not related to the “WannaCry” ransomware attack.

“There is no indication that any financial, password or other sensitive personal information was accessed,” the company said in a statement. “Bell took immediate steps to secure affected systems. The company has been working closely with the RCMP cyber crime unit in its investigation and has informed the Office of the Privacy Commissioner.”

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