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Canadian dollar 'temporarily tarnished' but forecast to regain parity

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Stories Report on Business is following today:

Dollar to rebound, Scotia says

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The Canadian dollar has been driven down by global events but will see parity with the U.S. currency again by the fourth quarter of the year and rise slightly through 2011, Scotia Capital says in a report today. The loonie will be worth $1.03 U.S. by the fourth quarter of next year, it said in a foreign exchange outlook. The dollar's shine "might have been temporarily tarnished, but parity is still on the horizon," currency strategist Camilla Sutton wrote.

Projections for global growth, hurt by Europe's debt troubles and the potential impact of government austerity measures, have affected oil prices, which in turn help drive the loonie, but the outlook is still reasonably robust, she said. And while there are "hurdles" ahead for Canada's economy, it is still well placed. As well, the Bank of Canada has begun raising interest rates, with its first move yesterday, which also should help boost the currency. The dollar climbed sharply today to retake the 96-cent U.S. level.

Markets bet on next rate hike

Mark Carney's quarter-point interest rate hike yesterday was ... so yesterday. Markets are now looking ahead to the next Bank of Canada meeting July 20 and their odds are 36 per cent of another increase in the benchmark overnight rate of one-quarter of a percentage point, which would bring it to 0.75 per cent. Yesterday, the central bank made its first move since the financial crisis and recession, becoming the first among the G7 to do so. But it also sent a signal that it would take into account the turbulence in the markets and further economic data before hiking again.

How will rate hike be felt?

The hike, which still holds the benchmark rate at an exceptionally low 0.5 per cent, was largely symbolic and the economy won't feel it, Scotia Capital economists Karen Cordes Woods and Derek Holt said today, citing two reasons.

"One is that longer borrowing costs have fallen in offsetting fashion, and has [the Canadian dollar]" they wrote. "Forget the spread watchers, it's the yield that matters to main street, including main street USA where the all-important 30-year fixed mortgage rate fell from a peak of 5.25 per cent in April to the 4.9-per-cent mark today driven by safe-haven seeking into government bonds."

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Also, they said, "financial innovation" in Canada gives borrowers much more control to adjust principal repayment schedules in response to rate changes. That has developed since the mid-1990s, beginning with the popularity of revolving lines of credit that see the borrower determine the principal repayment schedules, and has since spread.

"Households have more ability than ever to offset modest rate changes with modified principal repayment schedules than ever before," they said. "Real tightening in this cycle will only begin when the overnight rate has climbed much further."


Carney plots cautious rate path

Boyd Erman: Kiss the days of easy interest rate forecasts goodbye

Rob Carrick: Time to get serious on paying down debt

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Investor Roundtable: Sizing up the rate hike


Behind the Bank of Canada's interest rate decision


Bombardier profit falls

The market for business jets is beginning to stabilize after the slump, Bombardier Inc. said today as it topped analysts' estimates, though only just, with first-quarter profit. The aerospace and rail manufacturer said profit in the quarter dipped 3 per cent to $153-million (U.S.) or 8 cents a share from $158-million or 9 cents a year earlier. Revenue also slipped to $4.25-billion from $4.47-billion. "Key indicators in the business jet market are showing signs of stabilization and our level of business aircraft cancellations has substantially decreased," said chief executive officer Pierre Beaudoin. Read the story

Messier, Bronfman on trial

Edgar Bronfman Jr. and Jean-Marie Messier face trial in a Paris court today on charges related to the near collapse of Vivendi Universal, the one-time water company that became a major media concern. Mr. Bronfman, the grandson of Montreal's legendary Samuel Bronfman, Mr. Messier and five others are involved in the saga involving Vivendi, whose shares plunged several years ago amid massive debts from the takeovers of Universal and Europe's Canal Plus pay-TV operation, among others. Prosecutors in the case recommended that it be tossed out, but a judge ordered the trial to proceed regardless.

The case involves allegations of misleading investors. A lawyer for Mr. Bronfman, accused of insider trading, asked the court today to drop the charges, saying he "should not be before this court" and that the judge was wrong. Read the story

BP shares continue to slide

Shares of BP PLC continued to slide today amid speculation the energy giant at the heart of the Gulf of Mexico oil spill may be a takeover target. BP has lost billions in market value, and yesterday the U.S. government launched criminal and civil probes related to the spill in the Gulf, though it did not name the players that would be investigated. BP hit another snag today when a diamond-edge saw stuck in a pipe on the well. Analysts are now speculating abut the company's future amid mounting costs of the efforts to contain the spill and the potential for huge legal costs.

"Battered and bruised BP took another blow to the body today following the announcement of a criminal investigation into its operations surrounding the [Gulf of Mexico]oil spill," said Yusuf Heusen, senior sales trader at IB Index. "As well as the already extensive financial hit that BP has taken - with more to come if further litigation goes ahead - the oil giant is now also in real danger of having irreparable harm done to its reputation."


Latest effort to halt Gulf of Mexico oil leak hits a snag

Commentary: Why BP's Tony Hayward must go

U.S. probe, surging costs threaten to sink BP

House prices to dip next year, CREA says

House prices will hit a record by the end of this year, but lower prices in Ontario and B.C. will drag down the national average in 2011, the Canadian Real Estate Association said in a new forecast today. "With interest rates soon expected to rise, Canada is widely believed to be entering a typical demand-driven downturn due to recent price increases and rising interest rates, CREA's chief economist Gregory Klump said. Read the story

Greece begins asset sales

Greece's embattled government is stepping up asset sales in a bid to raise €3-billion. Finance Minister George Papaconstantinou told reporters today that the country, which sparked Europe's debt crisis, is selling stakes in its postal service and water and railway companies in a move to bring in €1-billion a year for the next three years. Read the story

EU moves on ratings agencies

The EU proposes stepping up its oversight of credit rating agencies as part of a wide-ranging plan that would govern the financial sector. The EU executive today proposed that a new regulator not only monitor the agencies, but also be equipped with powers to punish them if they don't adequately give their reasons behind downgrades. European governments have expressed concerns over cuts to sovereign ratings that have roiled financial markets and driven up borrowing costs. The EU also wants changes to how banks are government by their boards and shareholders, and a new tax on banks.

Ratings performance 'disappointing,' Moody's says

The chief executive officer of Moody's Corp. says ratings are a tool in making a decision but aren't a recommendation to buy, sell or hold. Raymond McDaniel also says in prepared testimony to the Financial Crisis Inquiry Commission, where he will testify today along with Warren Buffett, that the ratings agency "is certainly not satisfied with the performance" ratings in the runup to the crisis and is overhauling its process. The panel has heard from several witnesses already. Mr. Buffett's Berskhire Hathaway is the largest investor in Moody's.

Goldcorp sells gold-silver project

Goldcorp Inc. is selling a gold-silver project in Mexico for about $500-million in cash and stock, the second sale of a smaller asset in as many months. The sale to Vancouver-based Mala Noche Resources, an exploration company, will allow the miner to focus more on its bigger mines. Today's deal will see Goldcorp take a 30-per-cent stake in Mala Noche, which will be headed by former Iamgold chief executive officer Joseph Conway. Read the story

Euro down, champagne up

There is an upside to the euro's downside. The chief executive officer of Taittinger said yesterday the fall in the currency should help boost exports of champagne and lead to tourists spending more in Europe, though he expressed concerns over the continent's debt troubles. "But we will always have the time to make love and drink champagne," Pierre-Emmanuel Taittinger told a Reuters summit on luxury goods. "... Today, life is very tough for all of us. There's stress. We are under pressure, we have to fight, we have to be competitive. We have to face all the difficulties of life. Nothing is better than a glass of champagne to forget things for a few minutes."

From today's Report on Business

Global imbalances threaten recovery

B.C. uses Web to fight online fraud

Profit power in GDP data bodes well for stock market

And, read our G8/G20 Global View summit blog by Kevin Carmichael

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