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Canadian dollar has likely ‘seen its worst,’ CIBC says

‘Worst’ appears over

The worst is probably over for the Canadian dollar, even if “one slight dip” is still in the cards, CIBC World Markets says.

A new CIBC currency forecast still suggests a 70-cent loonie in the second quarter of the year, down from the recent 72- to 73-cent range, but it’s onward and upward from there.

The projection, titled “loonie has seen its worst,” calls for the currency to hit 73.5 cents by the end of the year, about 74.5 cents in the first quarter of 2017, and then above 75 cents in the second quarter.

“With Canadian monetary policy taking a back seat to fiscal stimulus, [U.S. Federal Reserve] rate hikes being delayed until later in the year and oil prices appearing to have bottomed out, we’ve strengthened our near-term forecast for the Canadian dollar,” CIBC said.

“Indeed, it’s now likely that the loonie has seen the worst of the depreciation, even if it has one slight dip ahead.” it added.

“The Bank of Canada’s decision to keep rates on hold in January represented an important turning point for the currency. Since reaching its weakest level on the day before the announcement, a time when markets were pricing in a high probability of further monetary easing, the [Canadian dollar] has appreciated more than 5 per cent.”

The value of the loonie, of course, plays out across Canada’s economy, from export industries to the tourism sector.

So far, the weak dollar has helped manufacturing, but its current value “points to a much more dramatic improvement in trade,” said BMO Nesbitt Burns chief economist Douglas Porter.

Net exports, he said in a research note, are “finally gathering some momentum,” though a lot of that is because of declining imports.

“The question now is whether Canada can fully respond,” Mr. Porter said.

“If not, then those warnings of ‘Dutch Disease’ back when the currency was at part will have had a point,” he added.

“So far, the evidence suggests that while trade is reviving, there was indeed some lasting from the prior [Canadian dollar] strength. Net trade remains a shadow of itself when the currency was last at these levels (around 2003).

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Encana cuts deep

The collapse in crude prices continues to take a hefty toll on Canada’s oil patch.

Encana Corp. today posted a fourth-quarter loss, at the same time cutting its dividend and planned spending and saying it will eliminate more jobs.

The energy giant tumbled to a loss of $612-million, from a profit of $198-million a year earlier. Operating results rose to $111-million or 13 cents a share.

Encana slashed its dividend to 1.5 cents, trimmed its 2016 spending by 55 per cent to between $900-million and $1-billion, and said it will cut its work force by a further 20 per cent.

That, it added will mean that jobs will have been cut by more than half since 2013.

RBC raises dividend

Royal Bank of Canada boosted its dividend today as it posted a flat first quarter.

The bank raised its quarterly dividend by 2 cents to 81 cents, posting a profit of $2.45-billion, or $1.58 a share, compared with $1.65 a share a year earlier.

Chief executive officer Dave McKay called the results solid “within the context of a challenging macro environment.”

‘Brexit’ knocks pound again

The British pound is taking its knocks again as investors fret over the so-called Brexit debate.

“The U.K. is watching the pound losing ground on Brexit risks and the rally toward the bottom is certainly not over,” warned London Capital Group market analyst Ipek Ozkardeskaya.

Brexit is the term given to the potential exit of Britain from the European Union, which is heading toward a referendum after the country’s reform deal with its EU partners.

“Halfway through the first of 18 weeks of Brexit debate and [the pound vs. the U.S. dollar] has already hit seven-year lows, dropping more than 3 per cent in the last three trading days,” said IG market analyst Alastair McCaig.

“Added to the Brexit worries hanging over markets is the fact that the [foreign exchange] markets are still giving a 30-per-cent chance of interest rate cuts due to the shifting phraseology used by Mark Carney,” he added, referring to the governor of the Bank of England.

“With this sort of a backdrop, the U.K. tourist industry will be licking their lips at the prospect of the staycation once again being the holiday of choice this year.”

Stat of the day

2.4%
Increase in December ridership among Canada’s 10 biggest urban transit systems, to 142.6 million passenger trips, compared with a year earlier: Statistics Canada

Attractive men beware: Your looks could cost you

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