Two cents worth
An emerging consensus suggests the Canadian dollar may be nearing its bottom.
There are many unknowns, from oil prices to interest rates, but two Canadian banks now expect the loonie to end its downward spiral at about 70 cents U.S.
BMO Nesbitt Burns is the latest to make that call, forecasting in a recent report that the Canadian currency will average that level by the spring, when the bank expects the Federal Reserve to bring in a second increase to its benchmark interest rate.
Then, through the second half of 2016, “slightly firmer global economic growth should beget slightly firmer commodity prices, which should beget a slightly firmer Canadian dollar,” said BMO’s Michael Gregory and Benjamin Reitzes, who see the currency ending next year at a level closing in on 73 cents.
The loonie, now at just about 72 cents, has been knocked by the oil shock and the diverging policies of the Fed and the Bank of Canada, which some market players bet will cut its key rate again.
Charles St-Arnaud of the Nomura group believes that the loonie should be closer to 74 cents, based on his valuation model, and that a further slump is probably “limited” unless commodity prices slip even more or Canada’s economy takes further hits.
“Our simulation results suggest that commodity prices need to depreciate further, at least another 20 per cent, for the USD/CAD fair value to move above 1.40,” Mr. St-Arnaud said in a recent report, referring to the U.S. and Canadian currencies by their symbols.
By 1.40, he means a loonie worth just shy of 71.5 cents.
“Our simulations also indicate that if the market starts to price the same amount of rate hikes next year as in the [Fed] forecast, meaning an extra two hikes leading to a decline of the rate differential with Canada, it would push USD/CAD higher by between 2 and 2.5 cents, assuming Canadian yields do not change on their side,” Mr. St-Arnaud added, noting, too, that Nomura’s economics team indeed expects two more Fed hikes next year.
And by “higher,” he means lower for the loonie.
Valeant CEO on medical leave
Valeant Pharmaceuticals International Inc. has created a three-person office of the CEO to fill in while chief Michael Pearson is on medical leave.
Mr. Pearson is in hospital, being treated for a “severe case of pneumonia,” the company said today.
Making up the new CEO office are general counsel Robert Chai-Onn, company group chairman Ari Kellen and chief financial officer Robert Rosiello.