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Welcome to a 95-cent (and falling) Canadian dollar

These are stories Report on Business is following Tuesday, July 2, 2013.

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Welcome to 95-cent dollar
The loonie is now in the 95-cent range, and expected to weaken further amid the ever-changing fortunes of the U.S. dollar and other commodity-linked currencies.

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The loonie, as the dollar coin is known in Canada, emerged from the second quarter of the year with a loss of 3.3 per cent, bringing the erosion so far this year to 6 per cent. (It ended down 0.28 of a cent at 94.80 cents (U.S.) today, its lowest closing price since October, 2011.)

Most recently, it has been buffeted by developments in the United States, where the Federal Reserve has raised the likelihood of beginning to pull back on stimulus measures in the fall, and China, where troubles cloud the demand outlook for commodities.

The fast declines in the second quarter "highlight the asymmetry that marks CAD movement, in that strength occurs at a much more moderate pace relative to weakness, which tends to be rapid," Camilla Sutton and Eric Theoret of Bank of Nova Scotia said in a new report today, referring to the Canadian dollar by its symbol.

"CAD movement in Q2 2013 was primarily driven by shifting external factors, specifically the outlook for Fed policy and its resultant volatility, but also the expectations for global growth," they added.

"Domestically, a softer growth profile coincides with the evolution of a reduction in financial stability risks, allowing for a continuation of the [Bank of Canada's] 'on hold bias,'" they added.

"We expect CAD to weaken in the near term."

Ms. Sutton, Scotiabank's chief currency strategist, and her colleague Mr. Theoret, forecast that the loonie will slip to 94 cents in the fourth quarter, though pick up again to end next year at 99 cents.

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Up until recently, the Canadian and Australian dollars had been among the darlings of the currency markets as investors sought out "safe havens," attracted, in Canada's case, to a firm economic and fiscal outlook.

"As downside risks to global activity continue to subside, such a development presents the issue of diminishing 'safe haven' demand for Canadian fixed income assets by foreign investors, worth some 4 per cent of GDP over the year to April, 2013," Adam Cole and Elsa Lignos of RBC Europe said in a separate report today.

Earlier today, the Canadian dollar sank further before regaining some ground, pulled along by a drop in the Australian currency.

"Rightly or wrongly, mostly wrongly," the loonie tends to get painted with the same brush as the Australian currency, said Mark Chandler of RBC Dominion Securities.
The dip in the Australian dollar followed a stand-pat decision by the Reserve Bank of Australia today, while the U.S. dollar climbed.

Zynga gains
Shares of Zynga Inc. climbed again today, picking up from yesterday's gains as chief executive officer Mark Pincus steps aside to make way for a former executive of Microsoft Corp.

Shares of the maker of the FarmVille game gained about 6.5 per cent, having climbed more than 10 per cent yesterday on word that Don Mattrick, who headed up Microsoft's Xbox business, would become CEO next week.

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Mr. Pincus, the founder of Zynga, remains chairman.

U.S. banks to face Basel III
The Federal Reserve today unveiled a tougher plan for U.S. banks, which will have to meet new global capital requirements early next year.

The global requirements under what is known as the Basel III agreement mean American banks will have to hold a higher minimum ratio of capital to their risk-weighted assets.

The new rules will be phased in.

"This framework requires banking organizations to hold more and higher quality capital, which acts as a financial cushion to absorb losses, while reducing the incentive for firms to take excessive risks," Fed chairman Ben Bernanke said in a statement.

"With these revisions to our capital rules, banking organizations will be better able to withstand periods of financial stress, thus contributing to the overall health of the U.S. economy."

Introducing the Winklevoss Bitcoin Trust
Remember the Winklevoss twins – collectively known as the Winklevii – of Facebook fame?

If not, here's a quick recap: Cameron and Tyler Winklevoss accused Mark Zuckerberg of taking their idea and making it into what's now Facebook when they were students at Harvard. Made famous in the movie The Social Network, they settled a lawsuit and walked away with tens of millions. Then they pumped millions into Bitcoin, the virtual currency, buying about $11-million (U.S.) worth, according to what they told The New York Times.

Oops, that's about $8-million now.

Now they've gone a step further, and are seeking investors (friends?) for their Bitcoin venture.

After markets closed yesterday, they filed documents with U.S. regulators for an initial public offering for what amounts to an exchange-traded fund.

Their plan is to sell about $20-million to the public, with the security worth a bit of a Bitcoin, whose value surged earlier this year before sliding back.

According to the document for the Winklevoss Bitcoin Trust, 1 million Winklevoss Bitcoin Shares would be offered at $20.09.

"Currently, there is relatively small use of Bitcoins in the retail and commercial marketplace in comparison to relatively large use by speculators, thus contributing to price volatility that could adversely affect an investment in the shares," they warn in the document.

"A lack of expansion by Bitcoins into retail and commercial markets, or a contraction of such use, may result in increased volatility or a reduction in the Blended Bitcoin Price, either of which could adversely impact an investment in the shares," they add.

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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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