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With only 6 of 33 forecasters predicting a rate hike in today’s Bank of Canada announcement, it was inevitable: the Bank of Canada surprised a good 75% of the market, and triggered massive stop loss orders in the looni, when moments ago it announced it hiked rates by 25bps to 1%, sending the USDCAD lower by nearly 300 pips…

… the biggest spike in the loonie since March 2016, and the highest in two years.

According to the BOC statement, “removal of some of the considerable monetary policy stimulus in place is warranted” given stronger than expected economic performance while adding that “future monetary policy decisions are not predetermined” and will be guided by economic data and financial-market developments as they “inform the outlook for inflation.”

The Central bank also said that “close attention will be paid to the sensitivity of the economy to higher interest rates” given elevated household indebtedness. The bank will give particular focus to evolution of economy’s potential and labour market conditions, while highlighting that inflation remains below 2% but has evolved “largely as expected” since July MPR.

In the statement the central bank also highlighted that “excess capacity remains in labour market, wage and price pressures more subdued than historical relationships suggest” while “geopolitical risks and uncertainties around international trade and fiscal policies remain.”

Some analysts have highlighted that in the statement’s forward guidance, the central bank removed its inflation outlook, and replaced it with an outlook on potential output and the labor market.

Finally, the bank expects moderation of pace of economic growth in 2H 2017, but GDP level higher than expected in July MPR.

The full statement is below (link):

…click on the above link to read the rest of the article…

Canada’s Goods Producing Sector Caves

December 24, 2016

Canada’s Goods Producing Sector Caves

Exports get blamed, despite the crushed loonie.

Many countries, including the US, report GDP on a quarterly basis. Canada reports on a monthly basis. So today Statistics Canada reported GDP for October. What’s disconcerting isn’t so much that GDP fell 0.3% on a monthly basis – these things happen – though it disappointed economists along the way…

The “results were surprisingly bad,” wrote Krishen Rangasamy, senior economist at Economics and Strategy, National Bank of Canada.

“The GDP report is an ugly snowball of reality to the face of the economy to end the year after a nice run earlier in the fall,” said Douglas Porter, chief economist BMO .

But what was disconcerting was just how much the goods producing sectors are getting hammered across the board.

This chart by NBF Economics and Strategy shows the decline in October (blue bars, left scale), and it also shows that this type of monthly decline, during our mediocre economic era, is not rare. The red line (right scale) shows the annualized rate for the last three months, which is still positive, but careening lower:

Output of the overall goods producing industries caved 1.3% from September. It was broad-based, with manufacturing, mining, quarrying, and oil & gas extraction, construction, utilities, agriculture, and forestry all declining. It more than wiped out the gains of the goods producing sectors in September.

Manufacturing, which contributes about 10% to GDP, has taken a big beating, despite the loonie that the Bank of Canada has successfully devalued over the past few years to make exports more competitive, particularly in the US. But manufacturing output fell 2% on a monthly basis, the largest monthly decline since December 2013. It has gone nowhere since February 2014 (red line):

Both durable and non-durable manufacturing fell. StatCan:

…click on the above link to read the rest of the article…

Loonie Tumbles After Canadian Inflation, Retail Sales Plunge

September 23, 2016

Loonie Tumbles After Canadian Inflation, Retail Sales Plunge

A slew of disappointing data out of Canada has sent the Loonie tumbling this morning (despite higher oil prices).

Canadian Retail Sales and Inflation data missed across the board…

Multi-year lows in CPI, Core CPI, and Retail Sales…

And the result is a tumbling Loonie as expectations of further rate cuts loom…

Charts: Bloomberg

It was not a Merry Christmas for Canadian retailers

February 22, 2016

It was not a Merry Christmas for Canadian retailers

December’s retail sales slump was the worst in seven years, however, the weak demand from consumers didn’t stop retailers from raising prices again (up +2% the past year). I think retailers are adjusting prices to reflect higher import costs, courtesy of a much depreciated Canadian dollar. Based on the hotter than expected core CPI (inflation) for January, it seems that adjustment didn’t end in 2015. If these pressures don’t ease, Canada’s next move may be to hike rates, not cut! Stay tuned.

Canada Rebels against the Destruction of the Loonie

January 19, 2016

Canada Rebels against the Destruction of the Loonie

The fear of “currency instability.”

“Without precedent” — that’s what National Bank of Canada’s chief economist Stéfane Marion called the wholesale destruction of the loonie.

The Canadian dollar is in a tailspin. Rarely has it tumbled so far so fast, and against so many currencies. The steepness of the CAD’s depreciation against the USD is without precedent, -33%, or 3.5 standard deviations, in 24 months.

In the two weeks so far this year, the loonie has dropped 5.8% against the euro, 5.3% against the greenback, and 8.6% against the yen. “Even the likes of Norway (+5.4% against the CAD) and Sweden (+3.9%) are mocking the once-mighty Canadian dollar,” Marion wrote in the note. “Australia and New Zealand? Not to worry, they are also gaining ground against the CAD.”

The Canadian dollar plunged to a fresh 13-year low last week and hasn’t recovered since, hovering at US$0.688, below $0.70 for the first time since spring 2003.

People are getting alarmed. A lot of consumer goods are imported, including 81% of fruits and vegetables. The plunging loonie makes them more expensive for Canadians: meat prices rose 5% last year, fruits 9%, vegetables 10%. The average household ended up spending C$325 more for food in 2015 than in 2014, according to the Food Price Report. And it’s likely to get worse.

When Stephen Poloz became governor of the Bank of Canada in 2013, he set out to hammer down the Canadian dollar. In 2015, he redoubled his efforts. He relied on ceaseless jawboning. He even invoked the absurdity of negative interest rates. And he cut the overnight rate twice, the infamous surprise cut in January and the telegraphed cut in July, at a time when the Fed was flip-flopping about raising rates.

…click on the above link to read the rest of the article…

Canadian Stocks in Bear Market, Loonie Swoons, Crude Crashes to $16, Consumer & Business Confidence Dives…

January 13, 2016

Canadian Stocks in Bear Market, Loonie Swoons, Crude Crashes to $16, Consumer & Business Confidence Dives…

“Investment and hiring intentions lowest since 2009”: Bank of Canada

Since Christmas Eve, the Toronto Stock Exchange index has dropped every single day, 10 trading days in a row, including so far today as I’m writing this, the longest losing streak since 2002. Now at 12,210, it’s down 21% from its 52-week high, set on April 17, and thus in bear market purgatory.

Beaten down energy producers, at about 20% of the index, have had a big impact. But the problems are broader. Among the standouts is the must-own, super-growth, TSX mega-cap Valeant, whose shares have plunged 65% from their 52-week high.

The Canadian dollar just dropped below US$0.70 for the first time since spring 2003, to US$0.6996. It now takes C$1.43 to buy a US dollar, up from about parity in 2011, 2012, and much of 2013. That year, Stephen Poloz became governor of the Bank of Canada. His solution was to demolish the currency. So he took it down 28% against the US dollar, with a big supporting hand from the collapsing prices of the commodities that Canada exports. Oil joined them in mid-2014.

The US benchmark WTI is trading just above $30 a barrel. Pundits at major investment banks have their eyes set on $20. Doom-and-gloomers see $10.

Canadian producers aren’t so lucky. Alberta’s heavy crude blend, Western Canada Select, plunged 30% so far this year, and on Monday hit US$16.51 a barrel, according to PSAC. “Lowest close on record,” according to the Globe and Mail.

Canadian producers are already experiencing what doom-and-gloomers are predicting for WTI. The swoon of the Canadian dollar is in part a reflection of this. Poloz is patting himself on the back. He sees benefits for big exporters outside the resource sector, such as auto manufacturing plants and component suppliers to the US auto industry that compete with Mexico.

…click on the above link to read the rest of the article…

Canadian dollar dips below 71 cents for 1st time since 2003

January 6, 2016

Canadian dollar dips below 71 cents for 1st time since 2003

Oil and threat of global conflicts weigh on risky loonie

The Canadian dollar is dropping to levels not seen since the summer of 2003.

The Canadian dollar is dropping to levels not seen since the summer of 2003. (Pawel Dwulit/Bloomberg)

The Canadian dollar lost more than half a cent this morning, pushed down by oil prices and widespread risk aversion, going to below 71 cents US.

Early Wednesday, the loonie was changing hands at 70.90 cents US, down 0.55 of a cent. That’s the lowest level on record for Canada’s currency since the summer of 2003, when the dollar was on a multiyear march upwards from below 62 cents, which it briefly hit in 2002.

The reasons for the loonie’s weakness are a mix of old and new, as oil prices sank back to $35 US per barrel, but also “added pressure from the broader market tone of risk aversion,” Scotiabank foreign exchange strategist Shaun Osborne said in a note to clients.

Broadly speaking, the Canadian dollar is perceived to be a riskier asset than other currencies, such as the U.S. dollar and the euro. Anything with risk attached to it is getting savaged in the current market, as investors consider the possibility of conflict between Saudi Arabia and Iran, coupled with Tuesday’s news that North Korea may have detonated a hydrogen bomb.

On Tuesday, Bank of Montreal chief economist Douglas Porter told a gathering of leading economists that the loonie could fall below 70 cents US before it begins to recover.

WTI Plunges To $35 Handle As Loonie Hits 12 Year Low

January 5, 2016

WTI Plunges To $35 Handle As Loonie Hits 12 Year Low

WTI Crude prices just broke back to a $35 handle for the first time since mid-December as the combination of un-growth, Saudi price cuts, a rancorous OPEC, and production increases weigh on the world’s most important commodity. At the same time, oil producers are getting hit with the Canadian Dollar plunging above 1.4000 to its lowest since 2003…

And FX producers are getting battered…

Looney Plunges As Canadian GDP Collapses Most Since 2009

December 1, 2015

Looney Plunges As Canadian GDP Collapses Most Since 2009

Who could have seen that coming? It appears, for America’s northern brethren, low oil proces are unequivocally terrible. Against expectations of a flat 0.0% unchanged September, Canadian GDP plunged 0.5% – its largest MoM drop since March 2009 and the biggest miss since Dec 2008. With Canada’s housing bubble bursting, it’s time for the central planners to get back to work and re-invigorate the massive mal-invesment boom (and ban pawning of luxury goods).

In the past year, we have extensively profiled the collapse of ground zero of Canada’s oil industry as a result of the plunge in the price of oil, in posts such as the following:

Since then it has gotten far, far worse for Canada… GDP is down 0.5% MoM (and unchanged YoY – the worst since Nov 09)

The initial reaction is a tumbling looney…

Enjoy Canada’s low dollar while you can: Don Pittis

August 26, 2015

Enjoy Canada’s low dollar while you can: Don Pittis

There’s not much you can do about the low loonie, so just look on the bright side

The low Canadian dollar is hurting John Stiles at Calgary-based Planet Foods. His company distributes natural foods and healthy snacks across Canada.

The cost of his U.S. imports is going up, but he can’t even raise his prices. The large well-known chains he sells to, such as Mountain Equipment Co-op and SportChek, only allow price changes every four or six months.

Dollar dips below 75 cents for first time since 2004
China’s market problems could be Canada’s chance to ‘reset’ its economy
“Like with the dollar right now, we typically can’t do a price increase till January,” says Stiles, who is in charge of operations.

Waiting it out

According to Stiles, the only real answer is to wait it out. In the roughly 15 years Planet Foods has been operating he has seen three wild swings in the Canadian dollar.

“It’s going to take six months to a year to get that back to 90 cents,” he says.

Of course there are no guarantees that the loonie will bounce back so quickly. But Stiles offers us a useful reminder. The lower the loonie gets, the more likely it will climb back out of those lows.

While a rebound in Canada’s traditional industries may take years, the impact on tourism has been immediate with Banff “thriving.” (CBC)

The classic example of why the lower loonie helps the Canadian economy is that it is an advantage for Canadian exporters. But while we’re waiting, I thought it might be a good idea to imagine some other advantages, if just to make us feel better.

Unfortunately, there are signs a promised industrial rebound may be slow in coming. New export industries don’t grow overnight. There are some estimates that, like the effect of interest rate cuts, the wait for a currency-led change in the industrial economy must be measured in years.

Not so the tourism industry, where the rebound has been almost immediate.

…click on the above link to read the rest of the article…

Plunging loonie means inflation in store: Don Pittis

July 23, 2015

Plunging loonie means inflation in store: Don Pittis

Falling Canadian dollar means there are bargains to be had, but not for long

Taking a shortcut through an underground mall yesterday, I saw a couple who looked like Pan Am visitors ogling the low price of jewelry outside a little downtown Toronto shop.

Normally, we think of U.S. prices being cheaper than anything you get north of the border. But something special is going on with some Canadian goods right now.

As the Canadian dollar trades at lows not seen since 2004, it means that this year’s July sales may offer the best bargains you will see in a while. But it will come at a cost.

Statistical quirk?

The latest plunge is in some ways a statistical quirk, as you can see in the graph below. By falling under 77.85 cents US — the low hit on March 9, 2009 — suddenly the loonie was worth less that it had been through all the oil-boom years of the 2000s.

The Canadian dollar is trading at lows not seen since 2004. (CBC)

While it may be just statistics, there is also a reason why that quirk may be significant to long-term pricing, ushering in a new round of sharply higher inflation.

Some goods, like fresh food and energy, can change on a day-by-day or a week-to-week basis. If there is frost in Florida, a shortage of oranges shows up in grocery store prices within days.

But for many other goods like clothes, jewelry, books, appliances and cars, prices are far less volatile, says Victoria-based retail consultant Richard Talbot.

Last year’s prices

In some cases, wholesale prices for goods already in the supply chain were set months ago. Mom-and-pop retailers especially will often set their markup on the wholesale prices they paid so that profit on current inventories will be calculated based on what they paid their wholesalers.

“Generally retailers order at least a year ahead of time,” says Talbot. “Until that stock is expended, the prices would remain much the same.”

…click on the above link to read the rest of the article…

Canadian dollar dips below 77 cents for first time since 2009

July 18, 2015

Canadian dollar dips below 77 cents for first time since 2009

As strong U.S. dollar helps push loonie to 6-year low, analyst sees possible drop to 73 cents

MARKETS-CANADA/CURRENCY

The Canadian dollar fell below 77 cents against the U.S. dollar on July 17, 2015. (Mark Blinch/Reuters)

The Canadian dollar dropped to below 77 cents against the U.S. dollar on Friday for the first time since March 2009.

The Canadian dollar seesawed above and below the 77-cent level all day before closing at 77 cents US when stock markets closed.

The loonie started falling on Wednesday after the Bank of Canada cut its key interest rate to 0.5 per cent. The loonie lost more than a penny against the U.S. dollar that day, its worst one-day performance this year.

“It’s a perfect storm of events that’s sinking the Canadian dollar,” Adam Button, a currency analyst with ForexLive.com, told CBC News in an interview. He cited the collapse in oil prices that began last summer and the soaring value of the U.S. dollar.

“Almost at the exact same time as the Bank of Canada cut [rates], the Federal Reserve was talking about hiking rates,” added Button. “The U.S. and Canadian economies are wildly diverging at the moment.”

The Canadian dollar could plunge even lower, Button warned. He sees the loonie “on the brink of an 11-year low,” falling as low as 73 cents against the U.S. dollar in the next month.

U.S. economic momentum

Rising inflation in the U.S. helped boost the U.S. dollar at the loonie’s expense today, Karl Schamotta, director of foreign exchange research and strategy with Cambridge Global Payments, told CBC News.

“We see increasing signs of momentum in the American economy, and that’s likely to push the Federal Open Markets Committee toward [an interest rate hike] in the early part of the fall,” said Schamotta.

…click on the above link to read the rest of the article…

Manufacturing in Canada Sags, Triggers Chilling References to Financial Crisis

June 16, 2015

Manufacturing in Canada Sags, Triggers Chilling References to Financial Crisis

It’s also happening in the US, but it’s much worse in Canada.

In the US, May industrial production dropped “unexpectedly,” as it was roundly called on Monday, by 0.2%, according to the Federal Reserve. The index value has now dropped from month to month since December, except in March when it was unchanged. The Empire State Manufacturing Survey, also released on Monday, confirmed this sort of scenario, ending up in the negative (-2.0) for the second time in three months.

But in Canada, manufacturing is getting hit hard – and not just because of the oil bust, though it plays a big role. Originally the hope was that a lower Canadian dollar would boost manufacturing through increased exports. The loonie dropped 17% against the US dollar from January 2014 through mid-March 2015, though it has ticked up a smidgen since. But the theory didn’t work out.

Manufacturing sales fell 2.1% to C$49.8 billion in April, seasonally and inflation adjusted, Statistics Canada reported today. The index can be jumpy from month to month. For example, sales of food dropped 5.7% in April, the largest monthly drop since August 2013, after rising 3.4% in March. But the problem isn’t limited to one month. Sales are now down 7.3% from July 2014, the largest and steepest such decline since the Financial Crisis. This is what this trend looks like:

The biggest culprits in April were food (-5.7%), aerospace products and parts (-17.8%), petroleum and coal products (-2.7%), motor vehicles (-2.5%), and machinery (-2.7%). Of note, sales of machinery for the mining and oil & gas sectors plunged 30% year over year.

…click on the above link to read the rest of the article…

Just How Low Will The Loonie Go?

March 7, 2015

Just How Low Will The Loonie Go?

The Canadian dollar fell to below 80 cents on Friday, battered by bad news at home and good news south of the border, leaving economists scrambling to predict just how low it could go.

The loonie ended the week at 79.3 cents U.S., sinking after a report showed Canada had its worst trade balance in nearly three years alongside news of an improving job situation south of the border that lifted the U.S. greenback.

In theory, the low loonie should help exports by making Canadian-made goods cheaper abroad. But Canada posted its largest trade deficit since 2012, of $2.5 billion in January on the back of plunging oil prices.

Meanwhile, the U.S. economy easily surpassed expectations and pumped out 295,000 jobs in February, bringing the unemployment rate to 5.5 per cent, the lowest it has been since 2008.

With little evidence that other sectors will pick up the economic slack from the sinking oil sector, along with record high household debts and a volatile labour market, economists have been racing to find the bottom.

“The Bank of Canada keeps touting the long-awaited rotation to exports and investment; I say the rotation is keeping itself very well disguised,” BMO chief economist Doug Porter wrote in a note Friday.

BMO predicts the loonie will continue to be at its cheapest rate in six years for 2015.

Scotiabank’s chief currency strategist Camilla Sutton said she expects the loonie to sink further, to as low as 75 cents.

…click on the above link to read the rest of the article…

TSX closes down 360 points as oil trades below $50 a barrel

January 5, 2015

TSX closes down 360 points as oil trades below $50 a barrel

The Canadian dollar was lower Monday, dragged below the 85 cent US level because of continuing weakness in the price of oil, which dropped below $50 US a barrel for the first time since 2009.

The plunging oil price hammered the Toronto Stock Exchange, which was off by more than three per cent or 380 points in the afternoon. Commodity-based shares were especially hard hit, with the energysubindex off six per cent and metals and mining off more than four.

Why cheap oil could actually be good for Canada’s economy
ANALYSIS: Loonie oil prices could fall further still

The TSX closed down 360.95 points or 2.4 per cent at 14,392.70.

“Investors (are) trying to figure out what the new equilibrium is for oil and commodities in general,” said Craig Fehr, Canadian markets strategist at Edward Jones in St. Louis. “I think we will feel our way through that for quite some time.”

The loonie dropped to its lowest point since May 2009 on Monday, changing hands at 84.90 at one point, although it recovered to close at 85.05 cents US later in the day. Much of that is because of strength in the U.S. dollar — as opposed to weakness in the loonie — because the U.S. greenback has been gaining ground against virtually every other world currency for several weeks now.

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