Loonie bounces back
The Canadian dollar is sitting at about the 74-cent (U.S.) mark today, having staged a remarkable rebound from the bottom of the pack to near the top.
Analysts say there has been a clear shift in market sentiment, and a relatively quick one at that.
Having been driven down by oil prices, the economic outlook and speculation that the Bank of Canada would cut its benchmark rate again, the loonie has rebounded sharply from its depths.
CIBC World Markets, for one, believes the sustained rout in the currency is over, though there could still be one short-term dip left to come.
“Just a little more than a month ago, the Canadian dollar seemed to be in a freefall and some bears were spouting that it could be on its way to 59 cents,” said chief economist Douglas Porter of BMO Nesbitt Burns.
“Well, take a less frothy U.S. dollar, less awful oil prices, and a Bank of Canada on hold (for now), and presto-chango and the currency is suddenly on fire,” he added.
“The loonie has popped 8 per cent from its mid-January lows, and has one of the biggest gains in the world so far in 2016.”
So much, of course, depends on commodities, the global economy and the U.S. dollar, and the potential path of interest rates where the Bank of Canada and Federal Reserve are concerned.
“The recovery in oil prices has clearly been a positive influence on the loonie, yet a part of purchases are also, and increasingly, explained by the narrowing divergence between the Fed and the BoC,” said analyst Ipek Ozkardeskaya of London Capital Group.
“The [Canadian dollar] is ready to grasp the 75-cent level against the U.S. dollar given that the G20 focus remains on recession risks across the lobe, and laterally increases the dovish pressure on the Fed.”
Observers at Laurentian Bank Securities said the outlook is cloudy.
“In short, we expect a lot of currency volatility in the short and medium run as market sentiments swing back and forth from pessimistic to optimistic scenarios,” said chief strategist Luc Vallée and assistant chief economist Sébastien Lavoie.
“Our gut feeling is that further [Canadian dollar] weakness is likely in the short run, but that the loonie will finish the year higher than it is today,” they said in a report, adding the “timing and magnitude” of the loonie’s rise are hard to pin down.
“They will obviously depend on what will happen to the price of oil and the global economy ... The BoC will probably want to try enforcing a cap on the loonie at 80 cents U.S. for fears that a stronger [Canadian dollar] could derail the nascent recovery in non-commodity exports.”
A scene I'd love to see ...
“I think a wall across the border would be too much to build. You want to spend billions on infrastructure. So let's put our heads together.”
About that meeting
The Organization for Economic Co-operation and Development joined the call for G20 finance officials to act.
But observers believe there will be little concrete action when all is said and done.
“Any collective agreement seems more likely to be a promise to react rather than an action plan,” said Royal Bank of Canada senior currency strategist Elsa Lignos.
“That seems to also be the general analyst consensus, but given the rally in risky assets off Wednesday’s low, it would suggest downside bias for risky assets at the Monday open.”
This comes amid so many concerns over the global economy, everything from China to the angst over the so-called Brexit, which refers to Britain’s potential exit from the European Union and is now headed toward a referendum.
“It is highly unlikely that the G20 finance ministers will be able to deliver on anything more substantial than mere warm words and empty rhetoric, though I’m sure U.K. officials will somehow be able to shoehorn a mention in the statement about the risks of a ‘Brexit’ and ‘Project fear’ continues to get ramped up by the various vested interests in the global economy, as well as big business,” said CMC Markets chief analyst Michael Hewson.
Magna profit slips
Magna International Inc. today posted a drop in fourth-quarter profit and sales, noting the hit from a strong U.S. dollar to its annual results.
The auto parts giant posted a dip in profit from continuing operations to $483-million (U.S.), or $1.19 a share, from $516-million or $1.23 a year earlier.
Sales slipped to $8.6-billion from $8.8-billion.
“The weakening of certain currencies against our U.S. dollar reporting currency, in particular the euro and Canadian dollar, had a significant negative impact on our reported sales in 2015,” the company said.
Currency fluctuations cut its sales by $3.4-billion for the year, according to Magna. If you exclude that hit, sales rose 3 per cent.
Shares of Goldcorp Inc. slumped today in the wake of its quarterly results released late yesterday.
As The Globe and Mail’s Ian McGugan reports, the gold company cut its dividend as it posted a $4.3-billion (U.S.) fourth-quarter loss sparked by a big writedown.
The dividend was cut to 8 cents from 24 cents.
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