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These are stories Report on Business is following Wednesday, Jan. 21, 2015.

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All the king's horses and all the king's men …
The Canadian dollar took a mighty tumble today as the Bank of Canada shocked the markets with a rate cut.

The loonie, as Canada's dollar coin is known, fell to a low of 80.70 cents U.S., having tumbled below the 82-cent mark just yesterday in anticipation of a bleaker outlook from the central bank.

That was down from its high point today of 82.89 cents and yesterday's close at 82.56 cents.

It regained some ground to sit at just above the 81-cent mark by late afternoon.

As The Globe and Mail's Barrie McKenna reports, Bank of Canada Governor Stephen Poloz and his colleagues cut their benchmark overnight rate by one-quarter of a percentage point to 0.75 per cent.

"This decision is in response to the recent sharp drop in oil prices, which will be negative for growth and underlying inflation in Canada," the central bank said as it also cut its forecast for economic growth this year to just 2.1 per cent, down from its earlier projection of 2.4 per cent.

"The bank's policy action is intended to provide insurance against these risks, support the sectoral adjustment needed to strengthen investment and growth, and bring the Canadian economy back to full capacity and inflation to target within the projected horizon."

While some market players had expected the central bank to cut its rate at some point over the next year, that wasn't a widely held belief, and virtually no one saw today's move coming.

Which is largely why the loonie sank so far so fast.

There are suggestions from some that the central bank targeted the currency, which it denies it does. A lower currency, of course, helps support a country's exports.

"The Bank of Canada has taken the bull by the horn deciding to target a weaker CAD," said senior foreign exchange strategist Sébastien Galy of Société Générale, referring to the currency by its symbol.

"It is a surprise so early but indicates the emphasis on adjusting the CAD for a very sharp reversal in its terms of trade gains since 2002 (oil)."

Senior currency strategist Greg Moore of RBC Dominion Securities, however, sees it somewhat differently, and not a deliberate attempt by Mr. Poloz to drive down the loonie.

"In the end, he does view a lower currency as an important part of the recovery," Mr. Moore said.

"But that's not necessarily under his control."

Mr. Poloz would like to see an export rebound.

"A weaker Canadian dollar is clearly thought to be an important part of that adjustment," said Mark Chandler, Royal Bank of Canada's senior strategist for rates and currencies, referring to the central bank's comment on supporting "the sectoral adjustment."

You can expect the dollar to tumble further yet.

Mr. Galy forecasts an 80-cent loonie, possibly as low as 78 cents.

Mr. Moore also said 80 cents "is not too far off now." And given the exceptionally dovish nature of the Bank of Canada, he said, somewhere around 77 cents "isn't completely out of the question after today's shocker."

At the same time, the Bank of Canada also painted a brighter picture for the U.S. economy, which should filter across the border.

"The bank revised up its forecast for US. economic growth this year (average of 3.2 per cent vs. 2.9 per cent), good news for Canadian exporters particularly when combined with a weaker C$ (now even weaker after today's rate cut)," said deputy chief economist Michael Gregory of BMO Nesbitt Burns.

"However, the domestic economic lift via this channel along with lower gasoline prices for consumers was simply not enough to mitigate all the other oil-related risks looming on the horizon."

Central banks have been just full of surprises lately, from the Swiss decision to abandon the cap on the franc vs. the euro and the Danes going further into negative territory to keep a lid on the krone.

"Many traders will, by now, have had their fill of central bank surprises, yet this has not deterred the Bank of Canada," said market analyst Chris Beauchamp of IG in London.

"The unexpected cut by one-quarter of a percentage point to 0.75 per cent saw the loonie fall to a five-year low against the dollar," he added.

"The sharp drop in oil prices is posing a problem for the Canadian economy. The race to the bottom continues."

Up next is tomorrow's decision from the European Central Bank, which is expected to unveil an asset-buying stimulus program known as quantitative easing.

That's what prompted the Swiss and Danish central banks to move, though the Bank of Canada's cut had nothing to do with that.

But, observers now speculate, it may be a sign for other countries.

"The move by the BoC increases the probability that central banks of commodity exporters Norway and Australia both impacted by gloomier investment outlooks and falling inflation, may also cut their respective benchmark rates," said strategists at Société Générale.

Oil companies to cut back
Oil companies will slash $23-billion from their capital spending in Western Canada this year as a result of lower oil prices, a move that will shave 120,000 barrels a day from expected production in 2016, the Canadian Association of Petroleum Producers forecast today.

In an update to its short-term forecast, CAPP estimates the industry's capital investment in Western Canada in 2015 will total $46-billion this year, down from $69-billion in 2014, The Globe and Mail's Shawn McCarthy reports.

But it expects the oil sands investment to hold up somewhat better – falling by about a quarter to $25-billion from $33-billion last year.

Inflation fades
The outlook for consumer prices is fast looking like a New England Patriots football.

Not only is the Bank of Canada facing the issue of low inflation, two other major central banks had warnings of their own today.

According to minutes of its last meeting, the Bank of England now believes inflation could fall below zero.

"CPI inflation had fallen to 0.5 per cent in December, 0.5 percentage points lower than had been expected in November, and was now expected by bank staff to reach a trough of close to zero in March, as lower oil prices fed through to petrol prices," according to the central bank minutes.

"There was, therefore, a roughly even chance that CPI inflation would temporarily dip below zero at some time during the first half of 2015. Inflation had also fallen abroad and was negative in the euro area."

The Bank of Japan, meanwhile, which is no stranger to deflation, also trimmed its inflation forecasts.

"With regard to the CPI, the outlook for the underlying trend remains unchanged, but the year-on-year rate of increase will likely be lower toward fiscal 2015, due to the significant decline in crude prices," it said.

'And then there were two'
Sal Guatieri has looked at the latest stats, and decided that what were once three hot housing markets are now just two.

Like others, the senior economist at BMO Nesbitt Burns is now counting Calgary out amid the plunge in oil prices.

Which leaves just Toronto and Vancouver.

"After leading most cities in sales and price gains last year, Calgary's high-flying housing market has caught a serious chill," Mr. Guatieri said in a recent research note titled "And then there were two."

Home sales in Calgary tumbled 37 per cent in the first half of January, compared to a year earlier, while prices dipped 1.5 per cent and active listings surged by almost 65 per cent.

"More pain lies ahead, as pending sales plunged 53 per cent," Mr. Guatieri said.

"Meantime, Torontonians braved the cold temperatures to lift sales 9.8 per cent in the same [early January] period," he added.

"Vancouver doesn't report mid-month figures, but had strong momentum heading into the new year."

Indeed, the Bank of Canada warned just today of slower housing markets in Alberta.

"The oil-price shock will also affect housing activity in energy-intensive regions," the central bank said in its monetary policy report.

"There has been a decrease in housing starts and a sharp drop in resales and sales-to-listing ratios in December," it added.

"Near-term housing activity elsewhere is expected to remain high, supported by very low mortgage rates, although the extent to which the downturn already evident in Alberta will spill over into other regions remains to be seen."

Fast stands firm
Canada's top trade official is holding the line on the country's 'Buy America' spat with the United States.

In Rome today, Trade Minister Ed Fast warned that the rebuilding of a B.C. ferry terminal is doomed unless Alaska backs down.
"We have made it very clear that the Buy America provisions will not be applied on Canadian soil, property owned by the federal government," Mr. Fast said.

As our European bureau chief Eric Reguly reports from Rome, Mr. Fast was referring to the ferry terminal that sits on Crown land in Prince Rupert, in northern B.C. near the Alaska panhandle.

Because the terminal is leased to the Alaska Marine Highway System until 2063, and the project is being funded by the U.S. and Alaskan governments, Alaska Governor Bill Walker is insisting that the Buy America rule applies to the steel used in the construction.

Canada is fighting that with special measures.

Toyota sees decline
Toyota Motor Corp. is projecting a drop in production and sales this year.

According to its forecasts for 2015 released today, the Japanese auto maker expects global production to be cut by 1 percent, to about 10.2 million vehicles.

The cut will come in Japan, to the tune of a 6-per-cent decline, while production in other countries rises 3 per cent.

Toyota also forecasts a 1-per-cent decline in sales, but again, that's because of Japan, where they're expected to fall by 9 per cent to 2.1 million.

Outside of Japan, sales are projected to rise 2 per cent, for global sales just shy of 10.2 million.

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