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Election 'uncertainty' begins to weigh on loonie

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Uncertainty weighs on loonie The "uncertainty" surrounding Canada's federal election, and the surge of the New Democratic Party in public opinion polls, is weighing on the Canadian dollar , keeping the loonie in check as other major currencies gain against the greenback.

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The impact is muted, but it illustrates market fears of an NDP-led coalition, Scotia Capital currency strategist Camilla Sutton said today.

She noted that most of the drivers of the strong loonie, such as oil prices and speculation over interest rate hikes, haven't been factors of late, and the only thing really supporting Canada's currency has been the broad-based weakness in the U.S. greenback.

Ms. Sutton noted that the loonie is little changed from Friday's close while other major currencies have rallied.

At least part of this, she said, can be attributed to this week's polls, which indicate that Jack Layton's NDP is on a tear.

"The most recent polls showing the NDP climbing and the potential of an NDP-led coalition is somewhat concerning, but the impact is limited," Ms. Sutton said.

"Now, the flip side could be that the chance of a Conservative majority would be positive."

To put this in perspective, the loonie is still about 5 cents over parity, so it's not like the Tories can warn of the threat of socialist-led hordes and the impact in financial markets.

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The Canadian dollar has been strong, and is expected to be even stronger yet, buoyed by the country's economic and fiscal outlook, strong commodity prices and the soft greenback.

David Watt, senior currency strategist at RBC Dominion Securities, said the polls are beginning to become an issue, but, at this point, the impact on the dollar is probably more related to volatility, rather than the level of the loonie. And for now, it's not an issue that would change the trend.

"I'd say there are more questions from the global community," he said, adding that the turn in the opinion polls raises questions about the currency that haven't yet been seen in the election campaign.

Added Jeremy Stretch, head of currency strategy at CIBC World Markets, in an interview with Reuters: "It does throw something of a curveball into the market which had been relatively relaxed about the whole electoral process."

The loonie closed up on the day, climbing back from an earlier loss.

Fed stands pat The Federal Reserve held its key lending rate at an historic low near zero today, and said it would end its controversial plan to buy up $600-billion (U.S.) in Treasury securities, as planned, by the end of June.

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Notably, the central bank's policy-setting panel, the Federal Open Market Committeee, said again in its statement that would it hold its benchmark rate low for an "extended period," which signalled to markets to expect no change any time soon, Globe and Mail Washington correspondent Kevin Carmichael reports.

"Information received since the Federal Open Market Committee met in March indicates that the economic recovery is proceeding at a moderate pace and overall conditions in the labour market are improving gradually," the central bank said.

"Household spending and business investment in equipment and software continue to expand. However, investment in non-residential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since last summer, and concerns about global supplies of crude oil have contributed to a further increase in oil prices since the committee met in March. Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued."

All in all, its language changed only slightly. It did note: "Increases in the prices of energy and other commodities have pushed up inflation in recent months. The committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations."

Said economist Alistair Bentley of Toronto-Dominion Bank: "This policy announcement did not spell out anything new, and may have surprised some in the market who were anticipating a more hawkish tone in response to rising inflation expectations, the declining dollar and rising core and headline inflation."

Fed chief Ben Bernanke followed the announcement with his first ever post-decision news conference, at which he shed light on just what the Fed means when it says "extended period." It means, he told reporters, at least two meetings before the central bank changes rates.

"When quizzed about his definition of 'extended period' (which has been in the Fed's statement for several months now), he remained vague, referring to a 'couple of meetings, and said it depended on how the economy evolves," CIBC World Markets economist Krishen Rangasamy noted.

Overall, the Fed has shaved its growth outlook for the economy this year, to between 3.1 per cent and 3.3 per cent. But its more optimistic on employment growth.

West drives consumer confidence Consumer confidence is edging higher in Canada, buoyed by the happier folks in the West, but is still well below where it stood before the recession, the Conference Board of Canada says.

The group's consumer confidence index rose 4 points this month, with Quebec alone among the five regions tracked as showing a "marginal" impact. British Columbia holds the top spot, while Ontario is at the lowest level.

"Attitudes toward current finances remain stubbornly weak," the agency said in a statement.

"Despite evidence that the recovery in Canada is well under way, just 17.5 per cent of respondents said their finances had improved over the past six months, a decline of 0.3 percentage points from March. However, there was a 0.8 percentage-point drop in the number of respondents who said that their finances had worsened over the same period."

House prices rise Canadian house prices rose again in February, up by 0.1 per cent from January, and now sit about 3.8 per cent above the reading of a year earlier, according to the Teranet-National Bank house price index.

For months now, the pace of annual increases has trended down, though the monthly reading still marks the third gain in a row.

Prices for resale homes dipped in Toronto and Calgary, and climbed in Vancouver, Ottawa and Montreal.

"In March, market conditions were balanced at the national level," said National Bank's Marc Pinsonneault.

"True, they were rather tight in Vancouver and Toronto, but in these areas where houses are the most expensive, a front-loading of activity might have occurred given the announcement in January of a reduction in the maximum amortization period for insured mortgages from 35 to 30 years."

Added economist Diana Petramala of Toronto-Dominion Bank: "Going forward, the combination of rising interest rates, new mortgage insurance rules, and over-indebted households will likely put a damper on housing demand and home price growth through the second half of this year. Overall, as the economic backdrop begins to normalize, we expect the housing market to remain in a balanced position with more muted home price increases in the coming years."

Barrick shines Barrick Gold Corp. had a $1-billion (U.S.) first quarter.

The gold giant said today its first-quarter profit climbed 22 per cent to $1-billion, or $1 a share, reflecting better prices for both gold and copper .

"First-quarter operating results exceeded our expectations and combined with strong metal prices and good cost control, resulted in significant growth in earnings and operating cash flow," said chief executive officer Aaron Regent.

Barrick added that its exploration budget has been boosted by more than 50 per cent this year, to up to $340-million, and cited "early indications of positive results in North and South America."

Shoppers profit dips Stepped up sales of non-prescriptions ranging from milk to lipstick helped ease the pain of new generic drug laws, which cut into the first-quarter results of Shoppers Drug Mart Corp. , Globe and Mail retailing writer Marina Strauss reports.

Shoppers said today its first-quarter profit slipped to $118-million or 54 cents a share from $122-million or 56 cents a share a year earlier. Excluding a gain on the a sale-leaseback transaction, profit in last year's quarter was $114-million or 52 cents a share. Sales rose 2.7 per cent to $2.35-billion.

Rogers to launch LTE Rogers Communications Inc. will launch the next generation of wireless technology in four major Canadian cities by the end of the year, promising high-speed Internet access on mobile devices will be as fast as is currently available on home and office computers.

Rogers CEO Nadir Mohamed said today he is convinced Long Term Evolution (LTE) network technology is the future of the mobile industry, and will "fuel Canada's digital economy" in this century, The Globe and Mail's Janet McFarland reports.

Nexen profit climbs Nexen Inc. profit climbed in the first quarter to $202-million or 38 cents a share, from $141-million or 27 cents a year earlier. Revenue rose to $1.63-billion from $1.5-billion.

Nexen also noted in a statement that its board has approved development of its Golden Eagle project in the North Sea, and that it has entered Poland by taking a stake in Marathon Oil Corp. shale holdings, The Globe and Mail's Carrie Tait reports today.

"Nexen has numerous opportunities available with several projects in development, others to appraise and a large resource base that is expected to sustain growth well into the future," the company added. "This growth strategy includes plans to add approximately 70,000 barrels of oil equivalent per day of new production over the next 18 to 24 months."

Chief executive officer Marvin Romanow said Golden Eagle is the biggest discovery in the North Sea since Buzzard, and Nexen's share of the $3.3-billion (U.S.) cost is $1.2-billion.

"While I believe the government's decision to increase taxes will discourage new investment, our near term plans for the U.K. North Sea remain robust due to the size and quality of our discoveries," Mr. Romanow said, referring to tax plans by the British that have angered the industry.

"We also have a competitive advantage because of the extensive infrastructure and resources that we have in the region. We have successfully developed other large projects in the North Sea and this experience gives us confidence the project can be completed on schedule and on budget."

Cenovus profit slips Cenovus Energy Inc. today posted a slump in first-quarter profit to $47-million or 6 cents a share from $525-million or 70 cents a year earlier, hit by hedging losses of more than $200-million, among other factors such as lower natural gas prices.

Revenue, though, climbed to $3.5-billion from $3.2-billion.

"We've posted another strong quarter with production exceeding our expectations and operating expenses

coming in better than anticipated," said chief executive officer Brian Ferguson.

"Cash flow is also doing better than we expected so far this year. We're on track with our capital spending plan, including the investment in our expansion project at the Wood River Refinery, which is expected to be completed later this year."

UBS keen on CN UBS Securities Canada has boosted its 12-month price target on shares of Canadian National Railway Co. after the company's earnings report late yesterday.

As Globe and Mail transportation writer Brent Jang reports, Canada's biggest railway raised its outlook for adjusted earnings per share this year, forecasting "double-digit diluted EPS growth of up to 15 per cent."

UBS analyst Tasneem Azim raised her target to $81.50 from $80, and maintained her "buy" rating.

"Despite a challenging operating environment, CN was able to deliver 12-per-cent year-over-year EPS growth and a $0.02 beat relative to consensus in [the first quarter]" she said.

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Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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