Skip to main content
business briefing

Briefing highlights

  • The ‘sheer cussedness’ of the loonie
  • Council urges higher retirement age
  • What to watch for this week
  • How Super Bowl ads scored
  • Toyota raises profit outlook

Loonie's resilience

Analysts are somewhat amazed by the “sheer cussedness” of a Canadian dollar now worth more than 76 cents (U.S.).

Some don’t understand why the loonie isn’t sinking as they’d expected, and wonder if markets are “complacent” given the threat to Canadian trade from the young Trump administration.

“The resilience of CAD continues to confound our expectations,” said Paul Meggyesi of JPMorgan Chase, citing the “sheer cussedness” of the currency, which he referred to by its symbol.

But for a dip a couple of weeks ago, when Bank of Canada Governor Stephen Poloz knocked it down by saying an interest rate cut was still a possibility, the loonie has fared much better than other currencies.


“Indeed, the Canadian dollar is the second-best performing major currency since the U.S. election … seemingly at odds with the rising downside risk to Canada’s economy stemming from a more protectionist stance by the Trump administration,” said Toronto-Dominion Bank senior economist Leslie Preston.

“The loonie has had a helping hand from firmer oil prices, but markets may be somewhat complacent about the potential impact from any thickening of the U.S. border.”

Looked at another way, the Canadian dollar has now “bounced back more aggressively than any other currency as a proportion of its initial post-election selloff,” JPMorgan’s Mr. Meggyesi said in a report.

“CAD is now fairly valued on a short-run model basis, which in our view will be difficult to sustain, both in view of the potential collateral economic damage Canada will sustain from the now inevitable renegotiation of NAFTA and also because of the BoC’s easing bias, which is not adequately reflected in rate market pricing (and that easing bias is a direct consequence of the currency which BoC believes is inappropriately strong).”

What he means by that is that markets are underestimating the possibility of Mr. Poloz and his central bank colleagues cutting their already low benchmark rate to offset the impact of the loonie’s recent strength.

The central bank has bemoaned the fact that the loonie had been dragged higher along with the U.S. dollar against other currencies after the election, though the greenback has lost some ground of late.

Remember, Mr. Poloz is counting on a lower currency to help boost Canadian exports.

“The loonie touched its best level since early September [last] week, despite Governor Poloz’s best efforts to talk the currency down,” noted BMO Nesbitt Burns senior economist Benjamin Reitzes.

At this point, though, we’re not likely to see any real action from Mr. Poloz, other than “jawboning,” unless the loonie were to head back toward the 80-cent mark, which “might be a bit more jarring for the bank and could warrant a meaningful forecast downgrade,” Mr. Reitzes said.

“That would open the door a little wider to possible easing, though it’s clear Poloz doesn’t want to cut rates again at the moment,” he added.

“Bottom Line: The resilient loonie is causing trouble for the BoC. While we continue to look for the Canadian dollar to soften through 2017, that dynamic may take a bit longer to evolve than anticipated.”

Council urges higher retirement age

The federal council on economic growth says Canadians should be encouraged to delay retirement by raising the eligibility age for Old Age Security and the Canada Pension Plan as a way of boosting labour force participation.

The proposal is just one of many significant policy changes that the panel recommends as a way of boosting economic growth and preparing Canada for an era of dramatic change in the way Canadians work, The Globe and Mail’s Bill Curry and Sean Silcoff report.

While some of the ideas, such as as raising the eligibility age for OAS and CPP, run counter to the current position of the federal Liberals, many of the other proposals are in line with the government’s goals or are likely to find a home in some form in the upcoming federal budget.

What to watch for this week

It’s going to be a busy-ish few days that include a look at the latest trade numbers, which will be interesting given the Trump administration’s focus on trade and currencies.

Analysts are divided over what to expect from Statistics Canada’s Tuesday report on the merchandise trade balance in December.

There are some suggestions Canada could plunge back into a trade deficit, though many observers expect to see a surplus of about $300-million, shy of November’s $500-million.

BMO’s Mr. Reitzes, however, expects the surplus to swell to $1-billion, which would be the best showing since mid-2014.

“The Canadian dollar was slightly firmer in the month, but not enough to meaningfully impact trade,” Mr. Reitzes said.

“We’ll be watching export volumes closely as usual, to see if exporters can build on the 3.9-per-cent surge recorded in November,” he added.

Tuesday also brings the U.S. trade report, and it will be interesting to see what Mr. Trump has to say about another deficit that economists expect will come in at about $45-billion (U.S.) for December.

Friday morning brings everyone’s favourite punching bag, Statistics Canada’s monthly jobs report, this one for January.

It’s a favourite target because the numbers bounce around so much, and economists oft question the results.

Regardless, economists expect to see that Canada lost about 10,000 jobs in January, with an unemployment rate at 6.9 per cent.

It’s also a big week for corporate earnings.

Some of the biggies: Tyson Foods Inc., BP PLC, General Motors Corp., Heroux-Devtek Inc., Mosaic Co., Walt Disney Co., WestJet Airlines Ltd., Allergan PLC, GlaxoSmithKline PLC, Goodyear Tire & Rubber Co., Rio Tinto PLC, Suncor Energy Inc., Tesla Motors Inc., Time Warner Inc., Agrium Inc., Cameco Corp., Canaccord Genuity Group Inc., Canfor Corp., Coca-Cola Co., Domtar Corp., Great-West Lifeco Inc., Kellogg Co., Manulife Financial Corp., MEG Energy Corp., Telus Corp., Thomson Reuters Corp., TransCanada Corp., Twitter Inc., Viacom Inc., Hydro One Ltd. and IGM Financial Inc.