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Canadian dollar may sink to 95 cents, bank says

These are stories Report on Business is following Tuesday, Feb. 26, 2013.

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Loonie on path lower, bank says
The Canadian dollar, on a weaker path of late, could sink to the 95-cent (U.S.) level within the next month, Nomura Securities says.

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While exporters would welcome such a dip, down from about parity in mid-February, the reasons behind it would be troubling.

The loonie, as the dollar is known in Canada, is dipping for several reasons, though it's largely flat today, says Nomura's Charles St-Arnaud in New York.

Among them: The widening discount for western Canadian oil, known as Western Canadian Select or WCS, compared to the global benchmarks, West Texas Intermediate and Brent, a weaker economic picture and longer projected time-line for higher interest rates, and less "safe haven" money flowing into Canada.

"We have had a bearish view on the Canadian dollar since mid-December because of the negative terms-of-trade shock resulting from the oil price differential between WCS and Brent," Mr. St-Arnaud said in a report.

"Since then, USD/CAD has increased by about 4 per cent," he said, referring to the U.S. and Canadian currencies by their symbols.

"We believe that the move higher is supported by weak Canadian commodity prices, a reduction in financial flows into Canada and weak growth and inflation performance, leading to a reduction in rate expectations."

Look at the other way, that means the Canadian dollar has softened and, according to Mr. St-Arnaud, could dip further to 95 cents, though not likely beyond that.

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Chief currency strategist Camilla Sutton of Bank of Nova Scotia also cited Canada's weaker economic performance of late, which is expected to show in Statistics Canada's report Friday on how the economy fared in the fourth quarter of last year.

As well, she noted how the U.S. outlook has dimmed amid the country's ongoing budget woes, which would affect Canada, and the concerns on this side of the border over oil price spread, but also the housing market.

Markets troubled
Asian and European markets showed more signs of stress today as the euro crisis threatens to come back with a vengeance in the wake of Italy's election. Buoying stocks in New York, however, was Federal Reserve chairman Ben Bernanke's defence of the central bank's stimulus measures.

As The Globe and Mail's Eric Reguly reports, the gridlock in Italy, which sent New York lower yesterday, knocked Asian and European markets today, and nd sent Italian borrowing costs higher.

"Stocks are well and truly in the red as the Italian election spooks investors," said market analyst David Madden of IG in London.

"If there is one thing that will send the markets into a blind panic, it is uncertainty," he added in a research note.

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"Silvio Berlusconi's party has performed better than expected, which has not only upset his opponents but also investors. Mr. Berlusconi gained popularity by making promises of tax cuts, which although may be good for the individual, are probably not good for the country."

Tokyo's Nikkei lost 2.3 per cent, and Hong Kong's Hang Seng 1.3 per cent. In Europe, London's FTSE 100, Germany's DAX and the Paris CAC 40 were down by between 1.3 per cent and 2.7 per cent, though New York markets were up.

BMO boosts dividend
Bank of Montreal boosted its dividend by 2 cents today as it posted a 5-per-cent drop in first-quarter profit, The Globe and Mail's Grant Robertson reports.

While profit slipped on fatter loan losses and U.S. expansion costs, the Canadian bank still beat analysts' forecasts.

BMO, the fourth-largest of Canada's big banks and the first to report quarterly results, earned $1.05-billion or $1.53 a share in the quarter, down from $1.11-billion or $1.65 a year earlier. Revenue slipped 1 per cent to $4.08-billion.

On an adjusted basis, BMO earned $1.52 a share, beating expectations. On average, analysts expected earnings of about $1.47 a share. The adjusted earnings factor out the impact of a structured credit business in the U.K. that is being wound down.

"Overall, BMO had a strong operating quarter, exceeding our forecasts for loan growth in both Canada and the United States," said analyst Peter Routledge of National Bank Financial.

"Yet, the bank did not beat our [earnings per share] estimates by much due to a terrible margin environment in both countries, the consequence of the current very low interest rate environment. While the bank did raise its dividend $0.02/share (or 3 per cent), we expect EPS and, therefore, dividend growth, to be limited by tight net interest margins for the next several quarters at least."

Food costs to rise
Get set to feel the effects of last year's droughts on food prices.

"The effects of food inflation driven by the North American droughts of 2012 will be felt mostly in the first half of 2013," Michael McCain, the chief executive officer of Maple Leaf Foods Inc., said today as the company reported an increase in fourth-quarter profit, though a dip in revenue.

"As a result, we expect some short-term volatility in our earnings as we pass those those cost increase on in the marketplace," he said in a statement.

Over the past year, food prices in Canada have climbed by 1.1 per cent.

Maple Leaf earned $56-million or 39 cents a share in the quarter, well up from $9.2-million or 6 cents a year earlier. Revenue declined 3.3 per cent to $1.2-billion.

Music revenues up
Pardon the very bad pun, but the recording industry is singing a new tune.

Hard hit by pirated music and the general digital shift, the global industry has finally seen an increase in revenue, its first in well over a decade.

According to the International Federation of the Phonographic Industry – and someone might want to tell them it's time to change their name – global revenue increased by 0.3 per cent to $16.5-billion (U.S.) last year.

That's the first time since 1999 that revenues have increased, albeit marginally. Digital revenues were up 9 per cent.

This prompted the industry today to declare in a statement that it's "on a path to recovery," one boosted by licensed digital music services and moves into new markets.

"The digital music business is globalizing fast, as smartphones and new licensed services span new and emerging markets," the group said.

"In January 2011, the major international download and subscription services were present in 23 markets. Today, they are in more than 100."

Canada is among at least eight of the top 20 markets expected to see growth, the group added.

Overnight pleasure
Yes, I understand what Statistics Canada means in this report today, but it does cause the mind to wander:

"Canadians took 6.5 million trips for pleasure outside Canada in the third quarter, up 9.9 per cent from the same quarter a year earlier. Of these, 5.1 million trips were to the United States, a 10.8-per-cent increase. These trips for pleasure accounted for 69.3 per cent of all overnight travel to the United States. Canadian residents spent $2.9-billion on their overnight pleasure trips while in the United States."

Just sayin'.

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