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Canadian dollar forecast to stick below 90¢ through end of next year

These are stories Report on Business is following Thursday, March 27, 2014.

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Loonie's fortunes
A new forecast suggests the embattled Canadian dollar is going to stick below the 90-cent mark through the end of 2015.

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The projection released late yesterday by Bank of Nova Scotia sees the loonie, as the dollar coin is known, sinking as low as 86 cents and change by the end of the next quarter and closing out the year at 89 cents.

By the end of next year, projects chief currency strategist Camilla Sutton, the currency will be at 88 cents.

The loonie, which is above 90 cents today, has been softer for several reasons, notably a dovish Bank of Canada and a suggestion by the Federal Reserve that interest rates could rise earlier than expected.

"Late in the second half of the year, the CAD is expected to stabilize as a building U.S. economy recovery combined with a sustained depreciation in the currency flow into the Canadian fundamental backdrop," Ms. Sutton wrote in her report, referring to the loonie by its symbol.

"An improved domestic outlook should see the BoC embrace its neutral tone," she added.

"In addition, by the second half of 2014 there should be improved clarity on the future pipeline infrastructure in Canada and oil exports into the U.S. are likely to continue their steady upward trend. These factors provide some reassurance but not enough to support a strong CAD."

At least one other forecast sees the dollar topping the 90-cent mark, though not by much.

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CIBC World Markets, which also released its projections this week, expects the loonie to climb above 91 cents in the third quarter of this year, and close out both 2014 and 2015 at better than 92.5 cents.

Oliver faces test
Canada's new finance minister faces his first test with a feisty Bank of Montreal.

As The Globe and Mail's Tim Kiladze and Tara Perkins report, BMO has slashed a key mortgage rate, the five-year, to 2.99 per cent, the same level that sparked the anger of the former finance minister, who resigned a week ago.

Joe Oliver, who took over the finance post from Jim Flaherty, said today that he will "continue to monitor the market closely" after BMO's latest move, the first by a major bank to push below 3 per cent on a five-year term.

Mr. Flaherty was an absolute bear – no, not as in bearish – when it came to a housing market that some observers believe is still frothy and others say is headed for a soft landing.

The former finance minister moved several times to prevent a bubble. A year ago, when that key mortgage rate dropped to 2.99 per cent, he spoke out publicly, urging "responsible lending."

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BMO says its rate cut has nothing to do with Mr. Flaherty's resignation, and is rather connected to lower bond yields and the fact that the housing market is entering the crucial spring season.

Mr. Flaherty, along with former Bank of Canada governor Mark Carney, urged Canadians time and time again to bring down their record debts, the latter going so far as to threaten a hike in interest rates to tame the mortgage market.

Mr. Flaherty and Mr. Carney, of course, are now both gone, Mr. Flaherty out of politics and Mr. Carney to the Bank of England.

The Bank of Canada, now under Stephen Poloz, believes the housing market is not headed for a meltdown and that consumers are on something of a debt diet. The big banks believe the same thing.

The latest numbers in fact show that Canadians are easing off, though the key measure of household credit market debt to disposable income is still at a dicey level of 163.97 per cent. Still, that fourth-quarter reading by Statistics Canada earlier this month was down from 164.2 per cent in the third quarter, which sparked some optimism.

It's not that overall credit isn't still rising, it's that it's doing so at a slower pace.

Bank economists, however, warn that this needs monitoring, and that this measure has fallen before, only to rebound again to record levels.

Indeed, maybe – just maybe – we'll end up looking back at the latest Statistics Canada report as so last quarter, though it's far too early to tell.

In February, according to Royal Bank of Canada, the pace of borrowing picked up again, albeit marginally to 4.1 per cent on a year-over-year basis, having held at 4 per cent in January.

Policy makers are looking largely at mortgage debt, where growth also inched up last month slightly to 5.1 per cent.

And just yesterday, chief economist David Rosenberg of Gluskin Sheff + Associates warned that, while everything "appears all well and good" at this point, "things could indeed change going forward."

Lululemon shares up
Shares of Lululemon Athletica Inc. climbed today after the yoga wear maker posted a flat fourth-quarter profit that topped its earlier forecast.

As The Globe and Mail's Marina Strauss reports, Lululemon and its new chief executive officer reported a profit of $109.7-million (U.S.), or 75 cents a share, compared to $109.4-million, also 75 cents, a year earlier.

Revenue climbed 7 per cent to $521-million, though there was one less week in the latest quarter. Comparable same store sales, a key measure in the industry, fell 2 per cent, while total comparable sales, which takes in everything, rose 4 per cent.

In mid-January, the company said it expected fourth-quarter revenue of between $513-million and $518-million, down from its earlier projections, and profit of 71 cents to 73 cents, also down.

Lululemon said today it expects first-quarter profit of between 31 cents and 33 cents, and sales of $377-million to $382-million.

For the year, it projects per-share profit of $1.80 to $1.90 and revenue of $1.77-billion to $1.82-billion.

Shares of Lululemon were 1.9 per cent per cent to $49.13 within about 15 minutes of the Nasdaq open.

WestJet firms up order
WestJet Airlines Ltd. has converted five options for Bombardier Inc. Q400 airplanes to firm orders as the airline's Encore network expands, The Globe and Mail's Greg Keenan reports.

The planes, which are scheduled for delivery in the second half of 2015, will raise Encore's fleet to 25 of the turbroprops from the planned level of 20. The budget division of WestJet has nine Q400 planes flying now.

Industry warns Ottawa
Quebec's forestry industry says the federal government is putting the province at a "serious competitive disadvantage" as the deadline approaches for an extension of the 2006 Canada-U.S. Softwood Lumber Agreement, The Globe and Mail's Bertrand Marotte writes today.

In an open letter to certain media outlets, the lobby group representing Quebec's forestry companies says the government has failed to respond to repeated requests it live up to the spirit of the agreement by pushing the United States to agree to a bilateral review of the province's stumpage system.

The Conseil dè l'industrie forestiere du Québec says the province "revised radically" its stumpage system last year to make it more market-oriented and satisfy the U.S. that its sawmills are not benefiting from illegal subsidies.

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