Briefing highlights
- Loonie forecast to slump further
- Foreign home buyers propping up loonie
- Investors drive global markets higher
- Video: Use of social media in the office
‘Awfully tough to be bullish’
Reading recent forecasts for the Canadian dollar is a bit like watching Wile E. Coyote chase Road Runner off a cliff: You’re waiting for that moment he realizes there’s no ground beneath his feet.
Several analysts expect the loonie, whose 5-per-cent gain this year has topped those of almost all other major currencies, to do a Wile E. Coyote because there’s so little holding it up.
It’s true that the U.S. dollar has been soft while oil prices have perked up somewhat, each helping the loonie, noted BMO Nesbitt Burns chief economist Douglas Porter. And that Ottawa’s fiscal measures look promising.
“But beyond those small sources of support, it’s awfully tough to be bullish on the currency looking through the remainder of this year, even after [last] week’s sag to just below 76 cents,” Mr. Porter said in a recent report, citing these loonie-unfriendly factors:
1. As The Globe and Mail’s Rachelle Younglai reports, unemployment is back up to 6.9 per cent after the economy lost more than 31,000 jobs last month, leaving the labour market with a lame showing. Said Mr. Porter: “Canada is one of the few countries in the industrialized world to post an increase in its unemployment rate over the past year.”
2. And as The Globe’s David Parkinson writes, exports have tumbled, bringing Canada’s trade deficit to a record $3.6-billion in June.
3. The loonie is tied to oil prices, which, already laid low, are heading into a seasonal soft period.
4. At the very least, the Bank of Canada will hold its key rate at just 0.5 per cent for some time yet, while the Federal Reserve raises its benchmark. At most, the Canadian central bank could cut rates again as the Fed moves higher, making the loonie less attractive. Said Mr. Porter: “The next move by either central bank will take Canadian overnight rates below those of the Fed for the first time since 2007.”
BMO’s latest outlook calls for the Canadian dollar to sink to about 75 cents by October, from just about 76 cents now, but Mr. Porter believes that “the risks look heavily skewed to an even deeper pullback at this point,” followed by a “modest” pickup next year if oil prices co-operate.
Mr. Porter isn’t alone. Shaun Osborne of Bank of Nova Scotia also recently forecast a slide in the loonie, citing some of the same reasons.
There’s also the possibility of a “contentious” U.S. election that could hurt the greenback.
CIBC World Markets, in turn, expects the loonie to slump to around 74 cents by the end of this year given oil prices and the Fed.
Taxes and the loonie
There’s one other thing helping to prop up the loonie, according to a major global bank: the foreign buyers who are gobbling up Canadian real estate.
Charles St-Arnaud of the Nomura economics department based his analysis on recent data from the B.C. government, which pegged foreign purchases in the province at $1-billion, or almost 8 per cent of all transactions, over the course of about a month beginning in early June.
In Vancouver alone, deals involving foreign buyers were valued at almost $900-million, or 10 per cent of the total, according to the numbers cited by B.C. Finance Minister Michael de Jong a couple of weeks ago as he slapped a 15-per-cent tax on such purchases in the area in a bid to cool the market.
Vancouver is one of two Canadian cities where surging home prices have sparked concerns over affordability and market stability. The other is Toronto.
Based on the B.C. government’s findings and June data from the Toronto Real Estate Board, Mr. St-Arnaud believes the flow of foreign money into the Toronto area could be between $500-million and $1-billion a month.
When you add it all up, it could mean that foreign funds are being pumped into residential real estate in Canada at a monthly pace of at least $1.5-billion to $2-billion, largely in Vancouver and Toronto.
“As a comparison, monthly flows into Canadian securities have been about $10-billion over the past year, and [foreign direct investment] flows about $4.5-billion,” Mr. St-Arnaud said in a recent report.
“This means that flows going into housing are likely sufficiently significant to influence the value of the Canadian dollar.”
Mr. St.-Arnaud doesn’t think the new Vancouver-area tax will slow down foreigners eyeing the Canadian market. Rather, it could simply drive that money to other cities, such as Toronto and Victoria.
“This means that the strong foreign inflows into Canadian housing are likely to continue, and these and continued strong inflows into Canadian securities could keep [the Canadian dollar] stronger than fundamentals,” Mr. St.-Arnaud said.
BMO’s Mr. Porter believes that new tax could “ding” the loonie by keeping some of the foreign money out, using different statistics to agree with Mr. St-Arnaud’s findings.
“There has been a heavy-duty inflow into Canadian deposits from abroad in the past three years to the tune of over $100-billion, much of which we suspect was aimed at real estate purchases,” Mr. Porter said.
“While certainly not all was headed for Vancouver, and not all was in real estate, it gives a sense of how big the inflows into real assets have become in recent years, which no doubt provided some support for the currency,” he added.
“At least at the margin, the tax could push these flows elsewhere, taking a bit of heat out of the currency.”
Vail to buy Whistler
Two major companies are moving mountains in the North American resort industry.
Vail Resorts Inc. has struck a deal for Canada’s Whistler Blackcomb Holdings Inc. worth what the two companies say is $36 a share, or $17.50 cash and 0.0975 of a share.
Whistler chief executive officer Dave Brownlie said the deal would boost the Canadian company’s financial heft and marketing, among other things.
“We will also continue our discussions with the Squamish and Lil’wat First Nations, on whose traditional lands we operate, regarding a business partnership that will benefit our communities, our province and our company for decades to come,” he said in a statement.
“Our board of directors has also been monitoring the unique challenges facing the broader ski industry due to the unpredictability of year-to-year regional weather patterns.”
Whistler is one of Canada’s major ski sites, while Vail boasts mountain resorts across the United States and in Australia.