Loonie tops $1.08 US in overseas trading

Last Updated: Tuesday, November 6, 2007 7:48 AM ET
The Canadian Press
The high-flying loonie has cleared another symbolic milestone — topping the $1.08 US mark in early-morning overseas trading Tuesday.
Just after 6 a.m. ET, the Canadian dollar traded briefly at 108.007 cents US, before dropping back below the benchmark $1.08 figure.
On Monday, it closed up 14 basis points at 107.18 cents US. That close broke through the previous 50-year-old high that was reached on Friday.
A key factor in the Canadian dollar's rise is the price of oil. It was trading Tuesday above the $95 US a barrel mark.
Traders expect further declines in U.S. crude oil stocks and that's fuelling concerns that supplies may be inadequate going into the Northern Hemisphere winter.
Analysts think some traders and investors will try to push oil prices to the psychologically important $100-per-barrel level this week.

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Loonie higher in record territory

Globe and Mail Update

November 5, 2007 at 5:48 PM EST

The unflappable Canadian dollar brushed aside falling oil prices and pushed higher into record territory Monday, with a new forecast calling for it to reach $1.12 (U.S.) in the coming months.

Surging commodity prices helped the loonie hit a major milestone last week, when it topped the Bank of Canada's previous official record high of $1.0614 set on Aug. 20, 1957. A number of economists and currency strategists revised their forecasts after last week's move, and although many say the currency is now above its suggested fair value, they agree that conditions seem ripe for further gains.

“The Canadian dollar is well positioned to extend current gains to peak at around $1.12 over the next two quarters,” Bank of Nova Scotia projected in a report Monday.

The loonie is being supported by a variety of factors, Scotiabank said, including a persistent weakness in the U.S. currency, speculative buying, strong commodity prices – particularly for crude oil – and the prospect of lower U.S. interest rates at a time when the Bank of Canada is expected to stand pat.

Canadian dollar continues to hover in record high territory, holding steady above $1.07 (U.S.). (CP)

Royal Bank of Canada raised its forecast for the Canadian currency on Friday, saying it will appreciate to around $1.08 before declining below parity with the U.S. dollar in the second half of next year.

The Canadian dollar has outperformed all other major currencies this year, rising 25 per cent against the greenback in 2007 and 5 per cent in the past month alone. It climbed even further Monday, finishing the session at $1.0718, up a smidgen from $1.0704 on Friday.

Douglas Porter, deputy chief economist at BMO Nesbitt Burns, said everyone is talking about how much higher the loonie can go, and how quickly it can get there. “Having now broken above $1.07, the currency is in uncharted territory and still has the wind at its back,” he said.

The dollar initially weakened Monday as crude oil prices eased below $94 a barrel. Increased risk-aversion also gripped markets after Citigroup Inc. warned of billions more in loan losses and the resignation of its chief executive officer Charles Prince fuelled fears of further fallout from the subprime lending debacle.

Despite oil's decline Monday, commodity prices are still at record highs and the U.S. dollar shows no signs of breaking out of its funk.

“All that can be said on that front is that the currency has been on a one-way trip north for five years, and the two big drivers – strong commodities and a weak U.S. dollar – are still very much in place,” Mr. Porter said. He noted that currency markets have a tendency to overshoot – “sometimes for years on end and sometimes wildly so” – to levels above those that seem reasonable by any traditional economic measures.

Mr. Porter expects the Canadian dollar will reach $1.10 early next year, before pulling back to the 90- to 95-cent range.

Loonie shows mettle

After a record-setting day Friday, the Canadian dollar appears set for further gains into previously unexplored territory while credit worries to hamper stocks
By MALCOLM MORRISON The Canadian Press
Sun. Nov 4 - 6:05 AM

Federal Finance Minister Jim Flaherty discusses dollar parity as he speaks to the Rotary Club on Toronto on Friday. (Frank Gunn / The Canadian Press)

TORONTO — The loonie is cleared to takeoff to even higher levels after the Canadian dollar had an amazing run last week, blowing through 50-year-old highs against the U.S. currency on the usual suspects — a lower greenback, higher oil prices and in particular a blow out jobs report for October.

The Canadian dollar shot up as much as two cents US Friday after Statistics Canada announced that the Canadian economy created 63,000 jobs in October, much higher than the consensus of 12,000.

The employment increase dropped the official jobless rate to a 33-year low of 5.8 per cent, from 5.9 per cent in September.

"The direct response of the currency to the labour market report is not that unusual but what is unusual of course was the starting point for the currency — it’s already had an unprecedented rise in the last two months, never mind the last five years," said Doug Porter, deputy chief economist at BMO Nesbitt Burns.

"It’s gone from incredible strength to incredible strength."

The dollar ultimately ended Friday’s session up to a record high of cents US, well past the high of 106.14 cents US set in August, 1957.

The latest surge in the dollar coupled with further evidence of a strong economy makes it increasingly difficult for the Bank of Canada to use lower interest rates to cool demand for the currency.

"Overall the Canadian economy is on quite a roll here, the labour market is tight, and wage pressures are starting to creep up so it would be fairly difficult for the Bank of Canada to cut rates any time soon," said Craig Wright, chief economist at the Royal Bank.

"A fundamental move higher in the currency is fine, when you get into the speculative side of it, which I think we’re into to some degree now, then there may be some scope for the bank to offset some of that with a move but that’s probably a story for next year rather than this year."

Meanwhile, stock markets look set for a down week after the U.S. Federal Reserve last Wednesday cut interest rates by a quarter point to help mitigate damage from the contracting U.S. housing sector and keep the credit crisis from spreading into the broader economy.

Initially, the cut sent markets surging close to record levels but by the end of the week the mood turned more negative, despite the strong October jobs data, as worries resurfaced about credit conditions and the strength of financial companies.

Stocks have had a tremendous runup since the Fed cut interest rates a half point in September and investors hoped the worst of the credit troubles were behind the market.

However, at week’s end an analyst downgraded U.S. banking giant Citigroup to sector underperformer from sector performer, citing potential worries about its dividend payments.

And the Wall Street Journal reported that brokerage giant Merrill Lynch has engaged in deals with hedge funds to delay when it had to record losses on risky mortgage-backed securities.

It also said the Securities and Exchange Commission has started a probe looking at how Wall Street is valuing mortgage securities.

"It seems like credit market concerns, which really erupted in the summer and seemed to have faded, have never really gone away for the U.S. markets and they certainly have returned to the fore in recent days," added Porter.

The malaise also spread to the financial sector on the TSX, despite the fact that Canadian banks’ exposure to troubled U.S. mortgages is minimal.

"I think the broader concern of the credit turmoil we’re still living through for the economy is that it can squeeze the credit availability either directly or indirectly and I think that’s the concern for economic growth and more specifically for the financial services sector generally," he said.

Also weighing on investors was the message from the Fed last week that it’s done with this cycle of rate cuts since the economic data available so far indicates the damage from the housing sector is being contained.

"The standard view has been on Wall Street and elsewhere that the housing market is just so weak that there’s a real risk that it spills over to the rest of the economy," said Porter.

"But so far, evidence of a serious spillover is pretty hard to find."

Overall the Canadian economy is on quite a roll here, the labour market is tight, and wage pressures are starting to creep up so it would be fairly difficult for the Bank of Canada to cut rates any time soon. ... that’s probably a story for next year rather than this year.’
CRAIG WRIGHTchief economist, Royal Bank

Loonie closes above $1.07 US on strong job growth

Last Updated: Friday, November 2, 2007 | 8:41 AM ET

CBC News

The Canadian dollar gained almost two full cents against the U.S. greenback Friday following the release of a surprisingly strong jobs report in Canada.

The loonie closed the trading day at $1.0704 US, up 1.92 cents from Thursday. It went as high as $1.0730 US during the day, according to Bank of Canada data.

It's now at its highest level against the U.S dollar since the Canadian currency was allowed to float in 1950.

'We would not be surprised at all to see [the dollar] back at parity within a few weeks.'—Gavin Graham, Guardian Group of Funds

The Canadian economy added 63,000 jobs in October, pushing the jobless rate down 0.1 of a percentage point to 5.8 per cent — a 33-year low.

U.S. job growth was also much stronger than expected in October, adding 166,000 jobs when about 80,000 additions had been expected.

A weakening U.S. dollar, a cut in U.S. interest rates, economic concerns south of the border, strong oil prices and a healthy Canadian economy have all combined to push the loonie sharply higher.

The loonie hit parity with the U.S. dollar on Sept. 20 — a first in 30 years. Earlier this week, the Canadian dollar surpassed its previous post-war high of $1.0614 US, set in August 1957.

So far this year, the dollar has gained 24 per cent against the U.S. greenback, making it the best performer among the 16 most actively traded currencies, Bloomberg reported.

$1.10 US coming?

The speed of the dollar's ascent has forced economists to repeatedly revise their forecasts of just how high the loonie might fly. Many now see $1.10 US as a realistic near-term target.

"Crude oil could surely push the loonie up to $1.10 US in the near term, but not on a sustainable basis," TD Bank economist Pascal Gauthier wrote in a report Friday.

Gavin Graham, chief investment officer at Guardian Group of Funds, agreed that the loonie won't stay at these heights, especially after Friday's huge gain.

"We would not be surprised at all to see it back at parity within a few weeks, because what [a two-cent rise in one day] means is everybody and their grandmother is now long the Canadian dollar and short the U.S. dollar, and that only ends one way: with a big reversal," he told CBC News.

Speaking to reporters in Halifax, Prime Minister Stephen Harper said he doesn't comment on the value of the dollar.

"That is the responsibility of the Bank of Canada," he said.

Harper added the government has a lot of confidence in Canada's economy, but acknowledged the high dollar presents it with "some difficulties as well as some advantages."

'No quick fix': Flaherty

Some critics have urged the federal government to signal the Bank of Canada to lower interest rates to bring down the soaring dollar and ease the pressure on exporters.

But Finance Minister Jim Flaherty told a business group in Toronto it would be "a mistake for anyone to think there is a quick fix to this." He also declined to comment on central bank policy.

Sears Canada and Rexall Drug Stores on Friday joined a growing list of retailers lowering prices to reflect the high dollar. "Canadians expect us to give them lower prices in light of the dollar's value, and we are working to meet these expectations," said Sears Canada CEO Dene Rogers in a statement.

Wal-Mart, Zellers, the Bay and Indigo Books and Music have also slashed prices recently. Some car companies have lowered sticker prices or boosted incentives to keep customers from crossing the border.