Invest in Canada » Loonie

Loonie plunge could help Canada weather economic slowdown

investor — Thu, 02 Apr 2009 16:28:44 +0000

Experts say the plunging loonie, now at its lowest level in more than three years, could help Canada weather a global economic slowdown by making exports more competitive but things will be tough.

Canada’s manufacturing sector suffered as the dollar soared above parity with the U.S. greenback last year for the first time in decades.

The strong dollar made Canadian-produced goods relatively more expensive and hurt export-based industries, particularly the auto and forestry sectors, which have lost thousands of jobs in the last year.

One hope for Canadian exporters is that the loonie’s drop may soften the impact of a worldwide recession.

“It will help, but to the extent that the weak Canadian dollar is also a symptom of poor global economic growth, it’s more of a cushioning of the recession rather than a cure for it,” said Avery Shenfeld, a senior economist with CIBC World Markets.

He said the Canadian economy is too tightly intertwined with its American counterpart – reeling from the continued financial meltdown – for the currency exchange rate to reverse its woes completely.

The Canadian dollar closed Wednesday in North America on Wednesday at 79.70 cents US, down 2.69 cents from the previous close. It dropped another third of a cent in overseas trading early Thursday.

The loonie – which hit its all-time high of 110.31 cents US almost a year ago, last Nov. 7 – hasn’t been below 80 cents since mid-2005.

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Loonie extends gains versus greenback

investor — Wed, 18 Mar 2009 16:49:56 +0000

The Canadian dollar rose against the U.S. dollar on Wednesday morning, extending recent gains made on improving risk sentiment.

The Canadian dollar has largely been tracking North American stock markets, and much of its stronger tone since hitting a 4-1/2 year low last week has come on the back of a string of higher closes on equity markets.

Although U.S. and Canadian equity markets opened lower on Wednesday, the Canadian dollar held on to most of its gains as the euro rose versus the dollar to trade above $1.31 for the first time since January. At 9:45 a.m. (1345 GMT), the Canadian dollar rose to $1.2649 to the U.S. dollar, or 79.06 U.S. cents, from $1.2688 to the U.S. dollar, or 78.81 U.S. cents, at Tuesday’s close. At one point, the currency rallied as high as $1.2610 to the U.S. dollar, or 79.30 U.S. cents.

“We’re seeing some indications of improving tone in equity markets, resulting in funds moving out of the U.S. dollar. A number of other currencies are benefiting, including the Canada, as markets become a bit more sure that the depths of this downturn may be contained,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.

The optimism on equity markets in recent days has underscored a decline in risk aversion and has overcome Canadian data that has reinforced views that the economy is undergoing a major slowdown. The market shrugged off news on Wednesday that a plunge in the auto sector helped slash wholesale trade in Canada by a worse-than-expected 4.2% in January from December’s level.

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‘Goldilocks’ dollar is happy here

investor — Wed, 25 Feb 2009 18:06:46 +0000

The commodity boom is over, for now at least, and the Canadian dollar is having a serious hangover.

We have reached the Goldilocks level for the Canadian dollar. After a dramatic, commodity-driven boom and bust, the loonie has settled into a comfortable trading range in recent months. The currency is trading slightly below estimates of fair value and that is likely where it will trade over the near term.

The commodity boom is over, for now at least, and the Canadian dollar is having a serious hangover. Commodity price appreciation led to gains “by leaps and bounds” to the trade balance according to Peter Hall, chief economist at Export Development Canada. That rise translates to roughly 8% to 9% currency appreciation annually from 2003 to the beginning of 2008, says Hall. “Since then we have seen a big downdraft that is mostly commodity price driven.”

The currency also got a real boost when foreign multinationals had a ‘pay any price’ mentality for owning Canadian resource assets.

Now that Canadian assets are better valued, many multinationals, with the exception of the oil majors, are trying to shake the debt monkey off their backs. Energy giants were more conservative during the run-up in commodity prices and are sitting on sizeable cash balances. So they may pick at the low-hanging fruit — as did Total SA of France with an unsolicited $617-million bid for oil sand operator UTS Energy. However, the multi-billion dollar deals of yesteryear have dried up.

In its most recent Monthly FX Outlook CIBC has “pushed back” part of its expectations for a rise in the price of oil into 2010, with negative implications for its year-end Canadian dollar target.

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