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Canadian dollar loses over 2¢ as Japan fears crush markets

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Japan uncertainty roils markets The mounting nuclear crisis in Japan roiled financial markets this morning, crushing stocks, driving down commodities such as oil and gold , and shaving more than 2 cents off the Canadian dollar .

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"This is a safe haven rising story," said Elsa Lignos, senior currency strategist at Royal Bank of Canada Europe in London, citing the uncertainty in Japan in the wake of the devastating earthquake, tsunami nuclear crisis.

"Developments in Japan are critical to near-term risk sentiment," Ms. Lignos said. "With sentiment falling so rapidly, any indication of further blasts or rise in radiation will impact already shaky markets."

In Asia, Tokyo's benchmark Nikkei plunged a further 10.6 per cent as some of Japan's biggest manufacturers, from auto makers to electronics and power companies, were hit on the market. Other global exchanges also sank, including the Toronto Stock Exchange , the Dow Jones industrial average and the S&P 500 .

Scotia Capital currency strategist Camilla Sutton noted that recent events are all negative for the loonie.

"Japan is the third largest economy in the world and the combination of the earthquake, followed by a tsunami and now the rising nuclear threat is undeniably negative for Japanese and global growth," Ms. Stutton said.

"[The Canadian dollar]is a notably pro-cyclical currency, performing well during periods of global growth and underperforming when global growth fades."

Amid the turmoil, what's happening in currency markets today could cause Japan additional trouble.

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"The Japanese currency continues to get pushed higher by yen repatriation flows to pay for rebuilding, while stock markets look set to plummet across the globe this morning after the Nikkei again fell hard in trading today, dropping to 18 month lows," CMC Markets analyst Michael Hewson said before trading began in Europe.

"The last thing Japan needs now is a strong yen which would hamper the exports it needs to try and rebuild what is already a highly indebted public sector economy."

UBS downgrades uranium stocks UBS Securities Canada is taking a dimmer view of major uranium companies today in the wake of the nuclear troubles in Japan.

Analyst Brian MacArthur cut his 12-month price target on shares of Cameco Corp. and Uranium One , whose stocks took a drubbing yesterday.

Mr. MacArthur cut his target on Cameco shares to $42 from $47, and on Uranium One to $4.80 from $6.70.

"While the situation is dynamic, we believe that pricing in the uranium spot market, which is relatively illiquid, could come under pressure in the near term due to sales from financial players and/or deferrals," he said. "Over the long-term we note that current uranium demand is relatively inelastic given it is base load power."

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He rated Cameco shares a "buy" and Uranium One "neutral."

Yesterday, The Globe and Mail's Richard Blackwell reports, Cameco chief executive officer Jerry Grandey said investors overreacted and were "largely driven by emotion." He expects no significant impact on the uranium company.

House price gains to pull back, CREA says House price gains are likely to "recede" starting next month as shorter mortgage terms keep some buyers out of an already softening market, the Canadian Real Estate Association says.

February sales slipped 1.6 per cent compared to January across the country, Globe and Mail real estate writer Steve Ladurantaye reports today, and were 5.9 per cent lower than a year ago. CREA said the average resale price in the month was $365,674, up 5.8 per cent from January's $343,675.

The Federal government wiped out 35-year amortizations earlier this year, and they will be unavailable by Friday. That makes mortgage payments higher, which could keep some buyers sidelined as the spring market begins.

"Canada's housing market is re-establishing its comfort zone after having experienced strong bouts of volatility over the last three years," said senior economist Pascal Gauthier of Toronto-Dominion Bank.

"Although sales are expected to ease in most parts of the country as interest rates rise - the Prairies could be the exception - activity should be strong enough to provide a floor under home prices. By the same token, better availability of new and existing units will provide more balanced markets than seen in pre-recession years. This will make hard for home values to outpace general inflation over the next couple of years."

Productivity rises Labour productivity in Canada is picking up as businesses boost their output at a faster pace.

Labour productivity in Canada climbed 0.5 per cent in the fourth quarter, gaining on the third quarter's 0.4-per-cent increase, Statistics Canada reported today. For last year as a whole, productivity, or real GDP per hour worked, rose 1.4 per cent, the fastest since 2005.

At 0.9 per cent, the gain in output among businesses eclipsed that of hours worked, which rose 0.4 per cent.

Productivity still lags that of the United States, where businesses saw an increase of 0.6 per cent in the fourth quarter and 2.8 per cent for all of 2010.

"Given its close ties with the U.S., Canadian businesses have the opportunity to learn from the productivity powerhouse," said economist Diana Petramala of Toronto-Dominion Bank.

"A strong Canadian dollar provides a nice opportunity to import the same innovation, and productivity- boosting machinery and equipment that seems to be working for U.S. businesses. We think that Canadian businesses will seize the opportunity and improvements in Canadian labour productivity will extend into 2011."

What to expect from the Fed Amid the crisis in Japan and the turmoil in global financial markets, investors will be watching today for signs from the Federal Reserve, whose policy announcement is due at 2:15 p.m. ET. Don't expect much, though.

"The Fed is expected to maintain its current policy stance," said BMO Nesbitt Burns economist Robert Kavcic.

"... The press statement will likely cite the improvement in labour markets and consumer spending but also affirm that households remain challenged by high unemployment and tight credit. Don't expect the Fed to signal an early exit from its asset-purchase program, and don't look for an extension beyond mid-year, the probability of which remains low at this point. The statement should continue to say that the Fed intends to keep rates 'exceptionally low' for an 'extended period.'

Globe and Mail Washington correspondent takes a look today at the hawks and the doves on the Fed's policy setting panel.

Nasdaq eyes NYSE Nasdaq OMX Group Inc. is moving ever closer to launching its own bid for NYSE Euronext , reports this morning say.

Nasdaq is reported to be in talks with banks to put together financing for a bid, which would be hostile given the proposed marriage of NYSE and Duetsche Boerse AG.

Boyd Erman's Morning Meeting Nasdaq, facing a tough slate of options as rivals merge, is still looking at a bid for NYSE Euronext. But it's also considering trying to do something with London Stock Exchange Group PLC, which is planning to combine with TMX Group Inc., Streetwise columnist Boyd Erman reports today.

In Economy Lab today

Higher food prices are here to stay, even in Canada where a strong loonie has helped protect consumers from rising costs, the Conference Board of Canada says.

Britain's Office for National Statistics is overhauling its inflation basket, the items it checks to monitor changes in consumer prices. The agency says the changes reflect how technology is changing society, but in reading today's announcement there's a distinctly romantic feel to it.

In Personal Finance today

Stuck in a contract and can't get out? Consumers are going to great lengths to part ways with their health clubs and cellphone providers, writes Dakshana Bascaramurty.

The latest tricks for ripping off consumers include fake virus warnings on personal computers. Dianne Nice offers some tips on how to avoid being scammed.

Getting a raise? Preet Banerjee shows what can be done with that money if you commit to saving some of it, rather than blowing it.

From today's Report on Business

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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