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Speculators betting against Canadian dollar refuse to ‘capitulate’

These are stories Report on Business is following Monday, June 2, 2014.

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Bets against loonie still high
Speculators betting against the Canadian dollar refuse to cry uncle.

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According to the latest numbers from the U.S. Commodities Futures Trading Commission, short positions against the Canadian currency are well down from the swollen levels of several months ago, but remain high at about $2-billion.

"It's surprising they haven't capitulated yet," chief currency strategist Camilla Sutton of Bank of Nova Scotia said of those traders.

And that, he she added today, leaves the dollar vulnerable to pressure.

The loonie, as Canada's dollar coin is known, had been in a long decline, sinking well below 90 cents U.S., but has since climbed back from its depths to sit now at about the 92-cent mark.

Ms. Sutton believes the speculators are holding their positions given the soft economy and the suggestion that the Bank of Canada isn't about to raise interest rates any time soon.

Indeed, the central bank under Governor Stephen Poloz meets again this week, and is expected to hold steady when it releases its policy stance on Wednesday.

The Bank of Canada will be careful not to say anything that would juice the loonie, economists believe, as it's counting on a weak currency to help boost exports, though the impact is a lagging one.

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"The Bank of Canada will go to pains to maintain its neutral stance, leaving the door open to cuts or hikes at the next move, but suggesting neither is coming soon," said chief economist Avery Shenfeld of CIBC World Markets.

"There's no point in giving too many warnings about rate hikes in 2015 if other central banks aren't, since that would take the C$ stronger and delay a needed transition to export-led growth."

Valeant raises the heat
The takeover fight for Botox-maker Allergan Inc. is getting nastier, The Globe and Mail's Bertrand Marotte writes.

Valeant Pharamaceuticals International Inc. chief executive officer Michael Pearson said today his company is preparing to file within two to three weeks a so-called "exchange offer" with the U.S. securities regulator to put its unsolicited takeover offer for Allergan directly to Allergan shareholders.

At the same time, activist investor Bill Ackman's Pershing Square Capital Management LP called for a special meeting of Allergan shareholders at which it would seek to replace a majority of Allergan's directors, six of the nine.

Pershing Square, Allergan's largest single shareholder with a 9.7-per-cent stake, is backing an unsolicited bid by Laval, Que.-based Valeant Pharmaceuticals International Inc. to take over Botox-maker Allergan.

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Engine failure raises concerns
The engine failure that occurred during testing last week raises serious concerns over the riskiness of Bombardier Inc.'s C Series aircraft program, says one analyst.

"The latest program setback aggravates the concerns we had with the slow flight test program to date and calls into question development progress," RBC Dominion Securities analyst Walter Spracklin said in a research note today, The Globe and Mail's Bertrand Marotte reports.

"Clearly, the engine failure will add to anticipated program timing and costs, while likely halting recent new order campaigns."

The engine incident is just the latest in a series of delays and cost overruns for Montreal-based Bombardier's $4.4-billion (U.S.) C Series program.

Bombardier officials said after the incident that the engine failure and ongoing investigation will not have an impact on plans for the C Series to enter service in the second half of 2015.

The fuel-efficient engine is made by the Pratt & Whitney unit of United Technologies Corp. and it has proven reliable over three years of testing, said Mr. Spracklin.

Fares to dip
Airfares are expected to fall 3.5 per cent this year as the global industry feels the pinch of concerns over China's economic growth and various geopolitical risks, The Globe and Mail's Bertrand Marotte reports.

The International Air Transport Association said today that airlines are forecast to earn $18-billion (U.S.) in profits in 2014, down from a previous forecast of $18.7-billion, for a net profit margin of 2.4 per cent.

That's up from earnings of $6.1-billion in 2012 and $10.6-billion last year, the Geneva-based organization said.Consumers are expected to spend a total of $746-billion on air travel this year, said IATA.

CEOs make pay gains
Pay for Canada's corporate chieftains is rising as companies put years of economic weakness behind them, The Globe and Mail's Janet McFarland writes in this year's special report on executive compensation.

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About the Author
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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