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The ‘curious’ correlation between the Canadian dollar and copper

These are stories Report on Business is following Wednesday, July 9, 2014.

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The 'curious' relationship
The Canadian dollar is often seen as a petrocurrency, but, Bank of Montreal finds, the "tightest correlation" is with copper.

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And that may suggest a modest pick-up in the global economy, chief economist Douglas Porter believes.

"As we oft-noted in the past, the commodity that has the tightest correlation with the Canadian dollar in recent years is copper – not oil (which accounts for about half the value of all commodity production in the country), not gas, not lumber and not gold," Mr. Porter said.

"That still-curious relationship has held up again in 2014 – as copper dipped precariously early this year, so too did the C$," he added in a research note.

"But since the early spring, both have made a Lazarus-like comeback, with copper bouncing back to its best level in more than four months and the C$ close to where it started the year (and nearly where it stood a year ago.)"

Both the commodity and the currency "ebb and flow" with the performance of the global economy and risk appetite among investors, he said in the research note titled "The curious case of copper and the Canadian dollar."

"So, the recent rebound in both prices is at least a mild thumbs-up for the global outlook."

Mr. Porter's report came amid a mixed outlook for copper. Morgan Stanley projects copper prices will see an average $7,055 (U.S.) a ton in the next few months, Bloomberg reports, while Goldman Sachs Group Inc. predicts a drop to $6,200 by the end of the year.

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The Canadian dollar, meanwhile, perked up noticeably in the second quarter of this year, and is just shy of 94 cents today.

(For Mr. Porter's research, see the accompanying infographic or click here.)

Oliver pushes for regulator
Canada's Finance Minister is hailing the addition of two provinces as "a major step" toward the long-running push for a national securities regulator.

Joe Oliver in a written statement today described the addition of Saskatchewan and New Brunswick as a sign of momentum, despite the relatively small scale in each province, The Globe and Mail's Josh Wingrove reports.

Those provinces joining, he said, is "a major step towards a single regulator, national in scope, that will enhance Canada's capital markets."

Saskatchewan and New Brunswick joined the fold after the government agreed to add two senior officials ‎to "accommodate" smaller provinces and territories by amending an agreement in principle signed 10 months ago. The federal government also offered to match funding for five years for provinces that currently draw revenue from their regulatory regime – a key carrot in wooing Saskatchewan and New Brunswick, though the regulators in Ontario and B.C.‎ were self-funded.

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Housing starts climb
Canada's housing construction industry refuses to cry uncle.

Housing starts across the country climbed in June to an annual pace of 198,185, surprising economists who had expected the number to fall to something closer in line with the rate of household formation in Canada.

The June number released today by Canada Mortgage and Housing Corp. was a pick-up from May's 196,993, The Globe and Mail's Tara Perkins reports.

"June marks the third consecutive month of starts of close to 200,000," said Nick Exarhos of CIBC World Markets.

"That goes against the conventional reasoning that 2014 would bring with it the expected slowdown in the Canadian housing boom," he added.

"Today's report also gives us more confidence that the weakness seen in April GDP due to a drop in construction was indeed transitory, and that for the second quarter as a whole, the building sector - along with other economic activity - will show signs of heating up."

On a six-month moving average, that annual pace is now up to 185,939.

"The trend in housing starts has been stable since March 2014, down from the range of 191,000 to 196,000 seen between September 2013 and February 2014," said CMHC chief economist Bob Dugan.

"This is in line with CMHC's analysis indicating that the new home construction market in Canada is headed for a soft landing in 2014," he added in a statement.

"Builders are expected to continue to manage their building activity to ensure that demand from buyers seeking a new unit is channeled toward unsold units, whether these are under construction or completed."

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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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