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Shop while you can: Canadian dollar to dip to 90 cents over 5 years, BMO says

These are stories Report on Business is following Friday, April 19, 2013.

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BMO sees loonie sinking over five years
Yesterday we wrote about how Canadians are flocking to the United States to shop, spurred in part by the strength of the loonie.

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Now, a new forecast predicts the Canadian currency is going to remain spunky for a while yet, but then begin to dip.

While that's a depressing projection for the country's exporters, whose goods cost more as the dollar rises, it suggests continuing bargains in the United States for Canadian shoppers.

Here's the catch: BMO Nesbitt Burns expects the loonie, as the dollar coin is known in Canada, to sink to 90 cents (U.S.) over the next five years, though remain around parity through most of 2013.

The currency has dipped of late amid continuing economic uncertainty that has helped push up the U.S. dollar, a drop in commodity prices and a longer expected timeline for when the Bank of Canada will raise interest rates, said BMO's chief economist Douglas Porter.

But the fact that Canada remains an attractive investment destination, and the expectation that the central will still move on rates before its U.S. counterpart should still help buoy the currency next year.

Bank of Nova Scotia also sees the loonie remaining at about parity by the end of 2014, which is as far as its projection goes, as does Canadian Imperial Bank of Commerce, though with the Canadian dollar a tad softer until the third quarter of next year.

Investors protest pay
Several big institutional investors are protesting what they say is an "unprecedented" signing bonus of $11.9-million (U.S.) to Barrick Gold Corp. co-chairman John Thorton, The Globe and Mail's Bertrand Marotte reports.

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The group, which includes the Caisse de dépôt et placement du Québec, the Ontario Municipal Employees Retirement System (OMERS), Ontario Teachers' Pension Plan and the Canada Pension Plan Investment Board, says that amount for a signing bonus for a co-chairman of the board is "to our knowledge unprecedented in Canada and is in addition to other compensation for the year for a total package of $17 million in 2012."

It adds that such compensation is "inconsistent with the governance principle of pay-for-performance and is therefore disproportionate and sets a troubling precedent in Canadian capital markets."

Barrick said in its recent circular that Mr. Thornton's signing bonus was an inducement for him to take the position and "make a substantial commitment of his time to Barrick."

Fitch cuts U.K.
Fitch Ratings downgraded Britain today, becoming the second major agency to take away the country's triple-A status.

Fitch knocked the rating down to AA+ after a review launched in late March.

"Despite the loss of its triple-A status, the U.K.'s extremely strong credit profile is reflected in its 'AA+' rating and the stable outlook," Fitch said, though then cited the issues at hand.

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"Higher than previously projected budget deficits and debt primarily reflects the weak growth performance of the U.K. economy in recent years, partly due to headwinds of private and public sector deleveraging and the euro zone crisis," it added.

"Fitch has revised down its forecast economic growth in 2013 and 2014 to 0.8 per cent and 1.8 per cent, respectively, from 1.5 per cent and 2 per cent at the time of the last review of the U.K.'s sovereign ratings in September 2012. The U.K. economy is not expected to reach its 2007 level of real GDP until 2014, underscoring the weakness of the economic recovery.
Moody's had already cut Britain's rating.

Inflation eases
Canada's annual inflation rate dipped in March to just 1 per cent as gas prices eased, but there was a noticeable rise in the cost of food.

The March pace, down from 1.2 per cent in February, was brought down by a 0.3-per-cent decline in prices at the gas pump.

On a monthly basis, seasonally adjusted, consumer prices rose 0.1 per cent in March from February.

Food prices have taken a marked leap over the past 12 months, up by 1.8 per cent, the federal agency said. On a monthly basis, food costs dipped.

Meals out at restaurants now cost 2.2 per cent more than they did a year ago, fresh vegetables 7.2 per cent more, and fresh fruit 8.7 per cent more.

The so-called core rate of inflation, which strips out volatile items and helps guide the Bank of Canada, held steady at 1.4 per cent.

In case there was any doubt - and there wasn't - there's no pressure on the central bank to shift its stance on interest rates any time soon.

Dell slips
Shares of Dell Inc. slipped today as one of the groups kicking the tires of the computer decided not to bid.

Blackstone Group, a private equity firm, had been heading a group considering a rival bid to the $24.4-billion (U.S.) offer from Silver Lake Partners and Dell's chief executive officer, Michael Dell.

But Dell said today Blackstone is bowing out. And the reasons are disheartening.

Here's what the group put together to study a bid said in a letter to the special committee of Dell's board.

"While we still believe that Dell is a leading global company with strong market positions, a number of significant adverse issues have surfaced since we submitted our letter proposal to you on March 22, including: (1) an unprecedented 14-per-cent market decline in PC volume in the first quarter of 2013, its steepest drop in history, and inconsistent with management's projections for modest industry growth; and (2) the rapidly eroding financial profile of Dell. Since our bid submission, we learned that the company revised its operating income projections for the current year to $3-billion from $3.7-billion."

Gold outlook lower
Another forecaster has cut its projection for gold prices amid the slump in bullion.

As The Globe and Mail's Pav Jordan reports, RBC Dominion Securities Inc. today trimmed its outlook for both gold and gold producers.

That follows bleaker outlooks from both Goldman Sachs Group Inc. and Société Générale.

RBC cut its gold forecast to $1,450 an ounce from $1,700, its silver forecast to $25.50 an ounce from $35, and its targets for North American gold companies by 30 per cent, 26 per cent for the top ranks.

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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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