Briefing highlights
- Loonie tumbles below 74 cents
- Trump could easily flag the loonie
- Shell in deal to sell oil sands assets
- Shell gets cash, shares of Canadian Natural
- Trans Mountain expansion costs rise
- European Central Bank holds the line
Trump's ire
Here’s something that could soon catch the eye of President Donald Trump: Canada’s loonie is suddenly down to the 74-cent mark.
A stronger U.S. dollar and lower oil prices proved a toxic mix for the currency, sending it to a low of 73.89 cents U.S. so far, and a high that wasn’t much higher, at 74.17 cents.
The greenback was pushed up by Wednesday’s report from ADP, which showed sharp job gains in the U.S. private sector in February. This added weight to suggestions that the Federal Reserve will hike its benchmark rate next week, a dollar-friendly move.
At the same time, oil prices tumbled.
“The solid U.S. ADP data and the sharp drop in oil prices were the main catalysts in the loonie’s sell-off,” said London Capital Group senior market analyst Ipek Ozkardeskaya.
“I believe that the headwinds in oil markets played a bigger role given that the Fed’s interest-rate hike is fully factored into the prices.”
Many observers believe the Canadian dollar’s slump could pick up steam.
“Moving forward, the situation in the oil markets could turn sour given that, despite OPEC’s efforts to cut production, the U.S. seems to play another game under the Trump administration,” Ms. Ozkardeskaya said.
“Based on Mr. Trump’s recent speeches, the U.S. may enhance its oil production to decrease its dependency on the rest of the world,” she added, noting that oil prices could well sink further depending on OPEC’s reaction.
“A bearish trend reversal in oil prices would accelerate the loonie’s sell-off against the U.S. dollar.”
There has been no talk about the loonie from Mr. Trump’s team, which is heading into negotiations with Canada and Mexico over the North American free-trade agreement.
But his administration has been vocal about what it believes are undervalued currencies. And Mr. Trump is anything but shy in stating what’s on his mind.
To be sure, no one is suggesting the Canadian dollar is being manipulated. But Bank of Canada Governor Stephen Poloz and his colleagues have been painting a dovish picture, including suggesting that a rate cut is on the table amid global uncertainty, even amid stronger indicators.
They’re counting on a lower loonie to help buoy exports.
“We think caution on the Canadian growth outlook remains warranted; underlying inflation remains subdued and Governor Poloz seems prepared to allow a widening policy gap between itself and the Fed to pull the USD higher against the CAD in the coming months,” Shaun Osborne, Bank of Nova Scotia’s chief currency strategist, said in a recent forecast that projects the loonie will sink below 71.5 cents in the second quarter.
He was referring to the U.S. and Canadian dollars by their symbols.
“The policy gap is already at levels that we consider very USD-supportive,” Mr. Osborne added, referring to the fact that the U.S. central bank is in the midst of a rate-hike cycle while the Bank of Canada is expected to do nothing for some time yet.
It’s not unreasonable that Mr. Trump could one day cite the loonie, though his targets have been countries with large trade imbalances with the U.S.
“You absolutely can’t rule out Canada coming onto his checklist, joining Germany, Japan and China,” said Adam Cole, Royal Bank of Canada’s chief currency strategist in London.
Mark McCormick, North American head of foreign exchange strategy at TD Securities, doesn’t think there will be much of an impact, agreeing with Mr. Cole that the administration’s targets are those countries running big trade surpluses with the U.S.
“They include China, Japan, some countries in the EU and Mexico, for the most part,” Mr. McCormick said.
“Since the administration wants to eliminate that trade deficit and the exchange rate is a means to accomplish that, they have been focusing on the valuation of these currencies,” he added.
“Given our models and the understanding of this framework, I do not see much scope for the administration to set its sights on CAD.”
The loonie, added Bipan Rai, the executive director of macro strategy at CIBC World Markets, noted that the Canadian dollar is nearer “fair value” than the euro or yen by most measurements.
Shell sells Alberta properties
Royal Dutch Shell PLC has struck two deals that will reshape its interests in Canada’s oil sands.
Under the first pact, Shell is selling its 60-per-cent stake in the Athabasca Oil Sands Project to Canadian Natural Resources Ltd.
In the second, Shell and Canadian Natural will buy Marathon Oil Corp.’s 20-per-cent stake in Athabasca and related properties.
The first deal is worth about $8.5-billion (U.S.) to Shell, $5.4-billion of which is in cash and $3.1-billion of which is in 98 million Canadian Natural shares.
Trans Mountain costs rise
The price tag for Kinder Morgan Inc.’s Trans Mountain expansion has increased again, this time to $7.4-billion, but the company says it still has strong commercial support for the long-awaited project, The Globe and Mail’s Kelly Cryderman reports.
The pipeline project cost had been pegged at $6.8-billion. Kinder Morgan now says the price tag has increased due to the 157 project conditions imposed by the National Energy Board, along with other changes.
“It’s been a lengthy and rigorous process, and in spite of the many changes in the markets over the five years since our customers signed on, we knew commercial support for this project remained strong,” said Ian Anderson, President of Kinder Morgan Canada in a news release.