Skip to main content
business briefing

Canadian dolllarsJONATHAN HAY

These are stories Report on Business is following Wednesday, Feb. 11, 2015.

Follow Michael Babad and The Globe's Business Briefing on Twitter.

Whither the loonie
The Canadian dollar sank again today, but more dramatic is one scenario for what might come next.

The loonie touched a low point of 78.76 cents U.S. and a high of 79.53 cents today, sitting just above the 79-cent mark by late afternoon.

That came amid still weaker oil prices, a stronger U.S. dollar and the "overhang from the dovish Bank of Canada," said chief currency strategist Camilla Sutton of Bank of Nova Scotia.

She was referring to comments yesterday from Carolyn Wilkins, the senior deputy to Bank of Canada Governor Stephen Poloz.

As The Globe and Mail's Barrie McKenna reports, Ms. Wilkins helped fuel speculation that the central bank will cut interest rates again when she spoke in Ottawa about the still sluggish jobs market.

Remember, the central bank shocked the markets late last month with a cut of one-quarter of a percentage point to bring its benchmark overnight rate down to 0.75 per cent.

Markets now expect a second cut, if not in March then in April.

But along with lower oil prices that have dragged the loonie down is also the speculation over when the Federal Reserve will raise its key fed funds rate.

That's now expected in midyear.

Thus, markets face the scenario of further easing by the Bank of Canada and tightening by its U.S. counterpart.

That certainly appears likely.

And what's not far-fetched is the possibility of the Bank of Canada going even further, with one cut in the spring and another in the summer, just as the Federal Reserve is hiking.

While that's not Bank of Montreal's forecast, it is a possibility, said BMO senior economist Sal Guatieri.

BMO expects the Bank of Canada to cut again in March, and then hold steady, while the Fed hikes in September.

Other market players see the U.S. central bank moving faster, in June, and are speculating on a second and third cut by Mr. Poloz, Ms. Wilkins and their colleagues.

"While it's not our base-case forecast, there is a non-zero chance that the bank could be cutting rates in June as the Fed initiates liftoff," Mr. Gautieri said in a research note.

"The loonie will remain in crash position."

Mr. Gautieri added in an interview that such a scenario would send the loonie "far lower than we anticipate."

BMO projects the currency will bottom this summer at 78 cents. Others see it sinking to the 75-cent range, and still others are calling for something closer to 71 cents.

"The loonie sagged 1 per cent Tuesday, slammed by a 4-per-cent spill in oil prices, more dovish talk from the Bank of Canada, and hawkish banter from Fed officials (upping the odds of a June rate hike)," Mr. Gautieri said.

"While the bank's Wilkins dwelled on the slack in Canada's labour market, a couple of U.S. reports suggested its workers are becoming a scarcer commodity."

Oil prices, of course, will also help dictate the loonie's fortunes. And, along with the Greek-related troubles of the euro zone, has been guiding the markets.

"Away from the eurogroup, the most notable feature of markets may be that the bounce in the oil price has stalled," said Kit Juckes, the chief of foreign exchange at Société Générale.

"That exposes the risk of a fresh upturn in USD/CAD, which is the best way to trade further oil price weakness, or even a protracted period during which prices remain around current levels."

Referring to the currencies by their symbols, what he means by that is the possibility of a higher U.S. dollar against the loonie.

This all comes amid fresh concerns of a currency war, or "competitive devaluation" by countries aimed at boosting their exports and helping to juice their economies.

As The Globe and Mail's David Parkinson writes, the United States warned other countries against this just yesterday, while Mr. Poloz rejected suggestions that he has tried to talk down the loonie.

The neverending story
Markets are nervous today as finance ministers from the euro zone meet to talk about Greece, and its demands for a new deal.

The positions are firm: Greece's new Syriza government wants less-harsh terms after its bailout and amid crippling levels of unemployment, while the euro zone, led by Germany's hard stance, is sticking to its austerity push.

"Over the week equity markets have increasingly factored in some form of bridging loan facility, which in true euro zone fashion will kick the can a little further down the road while doing nothing to change the fundamentals," said market analyst Alastair McCaig of IG in London.

"Considering how unyielding the German chancellor and finance minister have been towards changing any of the current terms, a delay in making the tough decisions may be the best of a bad bunch of options available to Syriza."

The other neverending story
TransCanada Corp. doesn't exactly use these words today, but it does suggest the latest U.S. findings over the controversial Keystone XL pipeline are hogwash.

"TransCanada disagrees with any suggestion that the Department of State has not fully and completely assessed the environmental impacts of Keystone XL," chief executive officer Russ Girling said in a statement today, referring to a letter sent to the department related to a recent report from the Environmental Protection Agency.

"We also reject the EPA's inference that at lower oil prices, Keystone XL will increase the rate of oil sands production and greenhouse gas emissions."

The EPA said last week there would indeed be an impact.

Air Canada loss widens
Air Canada today posted a fatter fourth-quarter loss, though it capped a strong year.

The airline's loss widened in the last three months of the year to $100-million, or 35 cents a share, from $6-million or 2 cents in 2013, The Globe and Mail's Greg Keenan reports.

For the full year, profit climbed to $105-million or 34 cents from $10-million or 2 cents a year earlier.

On an adjusted basis, last year's profit rose to $531-million or $1.81.

When Target goes out your door, Wal-Mart comes in your window
Target Corp. may be quitting Canada, but Wal-Mart Stores Inc. is forging ahead.

The giant U.S. discounter said today it's going to spend $340-million to remodel and expand several supercentres and add distribution operations.

Wal-Mart has already announced its capital spending plans, of which this is part.

A testament
It always seems somehow weird when funeral companies talk about their financial results.

But there's a payoff in death.

Service Corp. International, which bills itself as North America's biggest "provider of death care products and services," hiked its dividend by 11 per cent late yesterday as it hailed a surge in fourth-quarter profit.

Its profit climbed in the quarter to $87.8-million (U.S.), or 42 cents a share, from $29.3-million or 14 cents a year earlier.

"We ended the year on a high note with strong operating performance in the fourth quarter that resulted in an impressive 21-per-cent improvement in full-year normalized earnings per share and a 16-per-cent increase in adjusted cash flow from operations," said chief executive officer Tom Ryan.

"This is a testament to the dedicated efforts of our 24,000 associates who made this possible, while at the same time progressing through a very successful integration of the Stewart acquisition."

Presumably, too, it's a testament to all those who died last year.

Streetwise (for subscribers)

ROB Insight (for subscribers)

Business ticker

Report an error

Editorial code of conduct

Tickers mentioned in this story