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Speculators ‘stubbornly bearish’ on Canadian dollar

These are stories Report on Business is following Monday, June 16, 2014.

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Violence ripples through markets
The escalating violence in Iraq is rippling through stock and commodities markets this morning, though the impact on the Canadian dollar is muted.

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Heightened tensions in Ukraine are adding fuel to the fire.

Stocks are under pressure, while gold and oil are on the upswing.

"Crude oil prices are higher again on Monday despite a fight-back from government forces in Iraq. As such, U.S. markets look set to open lower awaiting possible American military intervention," said analyst Jasper Lawler of CMC Markets in London.

"Investors will be watching the news wires for military reaction from the United States," Mr. Lawler added.

"Any intervention will give investors' confidence that the U.S. government is willing to act to prevent a supply shock in crude oil, and that could contain oil prices. Unfortunately, the citizens of Iraq look set to see further instability but supplies of oil probably will not."

Tokyo's Nikkei lost 1.1 per cent, while Hong Kong's Hang Seng dipped.

In Europe, London's FTSE 100, Germany's DAX and the Paris CAC 40 were down by between 0.2 per cent and 0.5 per cent by about 9 a.m. ET.

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Dow Jones industrial average and S&P 500 futures were also down.

The loonie, as Canada's dollar coin is known, dipped marginally, to about the 92-cent level.

"Is it having an impact?" chief currency strategist Camilla Sutton of Bank of Nova Scotia said today.

"Not really. Should it? Probably."

There are two things at play here: First, the turmoil in Iraq should be pushing up the U.S. dollar, Ms. Sutton said. And while it is, the move is far from dramatic. And it's true that high oil prices bode well for the Canadian dollar, she added, but that's when stronger crude is driven by demand, rather than by supply.

Indeed, Ms. Sutton noted in a recent research report that sentiment surrounding the loonie is "stubbornly bearish."

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She was referring to Friday's report from the U.S. Commodities Futures Trading Commission that showed the net short position in the loonie holding at an "unwavering" $2-billion.

Policy makers will, of course, join investors in watching oil prices closely, which makes the market outlook "anybody's guess," said chief analyst Michael Hewson of CMC Markets in London.

"Investors are likely to remain twitchy for the foreseeable future, particularly in light of last week's events in Iraq, and the subsequent rise in oil prices," Mr. Hewson said today.

"If oil prices continue to remain elevated, than that could well act as a drag on economic growth over the course of the next few months, which means that events in Iraq are likely to drive the winds of investor sentiment for some time to come."

Enbridge awaits key decision
The Canadian government is set to announce a key decision on Enbridge Inc.'s politically-charged Northern Gateway project, having spent the past 18 months persuading the public that building an oil sands pipeline through British Columbia is in the national interest, The Globe and Mail's Shawn McCarthy writes today.

Under legislation passed in 2012, Ottawa has a Tuesday deadline for responding to a joint review panel report issued last December that recommended cabinet approve the $7.9-billion project, subject to Enbridge meeting 209 conditions.

The government faces a tough political battle, and is expected to qualify any approval with an admonition to Enbridge that it must win greater support in B.C. before it begins construction. The company can't start building the project until it has satisfied the panel that it has addressed 111 of the 209 conditions, with the rest laying down ongoing responsibilities for project management and reporting. Enbridge executives have said construction would not begin for at least 18 months.

Home prices to rise
Canada's realtors expect average home prices to climb 5.7 per cent this year, though driven by just three provinces.

The average national sales price should hit $404,300, boosted by British Columbia, Alberta and Ontario, the Canadian Real Estate Association said today. Other provinces will see just modest prices.

The group forecast much slower price growth in 2015, when the average will rise just 0.7 per cent to $407,300.

In its new forecast, as The Globe and Mail's Tara Perkins reports, CREA now expects sales to climb 1.2 per cent from 2013, to 463,400 units, with British Columba seeing its fastest growth on record, at 8.3 per cent.

Sales will rise a further 0.9 per cent next year, to 467,800, it said.

The group also reported that sales rose 4.8 per cent in May from a year earlier, and 5.9 per cent from April.

The average price came in 7.1 per cent above last year's level, but that is "skewed" by the expensive Vancouver and Toronto markets.

The better measure, the MLS home price index, showed a gain of about 5 per cent in May.

Will Quebecor expand wireless?
There's a growing probability that Quebecor Inc. will decide to go ahead with the expansion of wireless service across Canada amid signs of encouraging talks with the federal government, says a telecom analyst.

"We believe conversations between [Quebecor] and the government have been friendly," Barclays Capital analyst Phillip Huang said in his weekly telecom report today, The Globe and Mail's Bertrand Marotte reports.

"While the support that [Quebecor] is seeking is certainly not immaterial, we believe the government may be more receptive than expected,"

The federal government is actively engaged in encouraging a viable fourth national wireless carrier to compete with the Big 3, Rogers Communications Inc., BCE Inc. and Telus Corp.

Quebecor's Vidéotron division recently clinched licences for cellular airwaves in Ontario, British Columbia and Alberta, and it has been assessing an expansion outside Quebec but only if the right conditions are in place.

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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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