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Speculators scramble to cover bets against the Canadian dollar

These are stories Report on Business is following Monday, March 31, 2014.

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Loonie sentiment shifts
Currency speculators are scrambling amid a shift in sentiment, covering their bets against the Canadian dollar at the fastest pace in three years.

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At the same time, those betting for the loonie, as Canada's dollar coin is known, are raising their bets.

The latest numbers from the U.S. Commodities Futures Trading Commission – these are readings taken on Tuesdays and made public on Fridays – show the net short positions in the Canadian dollar being cut by more than half to $3.3-billion (U.S.).

On a week-over-week basis, it's the biggest short covering in three years and the "largest bullish build" since last September, said chief currency strategist Camilla Sutton of Bank of Nova Scotia.

The loonie has suffered a long slide, most recently because of the difference in the Bank of Canada and its U.S. counterpart, the Federal Reserve.

Remember that Bank of Canada Governor Stephen Poloz sent the loonie tumbling in mid-March when he painted a soft outlook for the Canadian economy and left the door open to a cut in interest rates.

One day later, after a meeting of the Fed's policy-setting panel, the Federal Open Market Committee or FOMC, chair Janet Yellen added to that as she sent the U.S. dollar higher by suggesting an earlier-than-expected hike in her benchmark rate.

Together, the two central bankers pushed the loonie below 89 cents. Today, it's at about 90.5 cents.

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"For CAD, a combination of the passing of the Poloz-induced headache and the ultimate signal of a more confident FOMC more than halved the net short position," Ms. Sutton said.

She was referring to the loonie by its symbol, and also to a joke by Mr. Poloz about a post-St. Patrick's Day headache.

The latest CFTC numbers, she added, unwound those of the week before, which had been driven, at least in part, by the central bank chief.

And basically, if the U.S. economy is deemed strong enough for an early rate hike in the second quarter of next year, that's seen as positive for global economic growth, in turn a good sign for Canada, Ms. Sutton said.

"Or at least makes the shorts nervous enough that it provides reason to cover them," she added.

Other factors are at play, as well, of course.

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"It tells you that there has been a significant paring down in bearish commodity bets and behind this bets that the Chinese economy would significantly deteriorate," said senior currency strategist Sébastien Galy of Société Générale.

"The fact that inflation did not drop further in Canada was also likely a trigger for that short-covering in CAD."

The loonie shot up 1.4 per cent last week, though all of this doesn't mean that it's poised to shoot up dramatically.

"The post-Poloz/Yellen sell-off a couple of weeks ago was a bit overdone, but we remain bearish on the loonie's prospects," said senior economist Benjamin Reitzes of BMO Nesbitt Burns.

"It's tough to think of a compelling reason to buy Canadian dollars, with commodity prices unlikely to strengthen and the U.S. economy expected to outperform," he added.

"In the near term, firmer [consumer price index] prints and some rebound from weak December activity will provide some support for the currency, but likely won't be enough to fuel any sustained rally."

For the record, the short position in the Japanese yen is the fattest among the major currencies, swelling last week to $8.4-billion.

Entwistle to step down
Darren Entwistle is stepping d‎own as Telus Corp.'s chief executive officer in May, The Globe and Mail's Rita Trichur reports.

The Vancouver-based phone company today announced a major management shuffle that includes chief commercial officer Joe Natale taking over as president and CEO as of May 8.

Mr. Entwistle will become the company's executive chair on that date.

"I am very pleased that our best in class succession planning process has resulted in Joe Natale being named as our next president and CEO and am excited to continue working with him in leading the progression of our national growth strategy," Mr. Entwistle said in a statement.

Encana sells assets
Encana Corp. is selling its natural gas assets in Wyoming's Jonah field to an affiliate of U.S. private investment firm TPG Capital for about $1.8-billion (U.S.), The Globe and Mail's Bertrand Marotte writes.

The sale of one of the largest natural gas fields in the United States is part of Calgary-based Encana's strategy to pare assets in order to focus on liquids-rich natural gas and oil, which have been selling at higher prices than those for dry gas.

"This transaction is consistent with our strategy," Encana president and chief executive officer Doug Suttles said on Monday.

"With this divestment of Jonah, we are unlocking value from a mature, high-quality asset and allowing our teams to focus on our five core growth areas and continue with execution of our new strategy," said chief executive officer Doug Suttles.

Economy rebounds
Still remember those icy winter days? The ones that dinged the economy?

According to Statistics Canada today, economic growth rebounded by 0.5 per cent January, retracing December's decline.

That was better than most economists had expected.

Manufacturing led a 1-per-cent expansion in goods-producing industries, the federal agency said, while output in the services sector rose 0.3 per cent.

The only sectors to register a decline were agriculture and forestry, and utilities.

X2 Resources raises funds
The new company set up by Mick Davis and other former Xstrata executives, X2 Resources, has raised $2.5-billion (U.S.) in funds and is set to buy mining assets in the belief that the commodities cycle is set for a revival, The Globe and Mail's Eric Reguly reports.

X2 announced today that it had secured the commitment from five investors, each of which have contributed $500-million. The same five have agreed to contribute another $1.25-billion in conditional equity funding, raising the potential total to US$3.75-billion.

X2's goal is to create mid-tier mining and metals group but has yet to make an investment.

Now that ample funding is in place, X2 is expected to move quickly on the acquisitions front. The company won't say where it is looking, though the team has intimate knowledge of the mining scene in Australia, Canada and South Africa.

Union seeks certification
A vote on whether workers at two Toyota Motor Corp. plants in Ontario will join a union is likely as early as next week, The Globe and Mail's Greg Keenan reports.

The Unifor union, which has been trying to organize workers at plants in Cambridge, Ont., and Woodstock, Ont., for more than a year, will ask the Ontario Labour Relations Board Monday to certify that more than 50 per cent of about 8,000 employees have signed union cards, signifying their approval of the union.

A vote is required within five business days, so it could be held next week.

Euro inflation declines
Not that anyone expects the European Central Bank to do anything about it this week, but inflation has eased again in the euro zone.

According to the Eurostat agency today, annual inflation in the monetary union dipped in March to 0.5 per cent from February's 0.7 per cent.

The latest reading comes in advance of an ECB policy meeting later this week.

"The picture remains mixed from country to country and this is not yet the end of the disinflation story," said Société Générale.

"Therefore, the inflation measure of the euro aggregate should remain low over the medium term. Given that the slowdown is mostly attributable to technical factors, we reiterate our view that it will not trigger any policy action from the ECB."

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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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