Briefing highlights
- The loonie and ‘trade war premium’
- Stocks, loonie, oil at a glance
- Ottawa rejects changes on resource bill
- Stable inflation gives Fed flexibility
What the loonie would be worth
The Canadian dollar could be worth about a penny more but for the trade angst sweeping the globe, CIBC World Markets says.
Bipan Rai, CIBC’s North America head of foreign exchange strategy, calculated the “trade war premium” of several pairs of currencies, the U.S. versus the Canadian dollar among them.
Others included the euro, pound and Australian and New Zealand dollars versus the greenback, and the U.S. dollar versus the Mexican peso, Japan’s yen and the Swiss, Swedish, Norwegian and Chinese currencies.
What he found was that the Australian and New Zealand dollars are “among the most exposed” given the commodity exports of those countries to China.
The yen and Swiss franc are the least exposed given their “haven appeal.” But the loonie and peso are also among the least exposed now that Canada, Mexico and the U.S. have wrapped up a new trade deal.
By trade war, Mr. Rai meant “all antagonism on the trade front at the moment,” at this point largely the U.S. spat with China but with the threat of fights against Japan and the euro zone.
“There’s no question that the trade war launched last year has clouded valuations in the currency markets both in direct and indirect ways,” Mr. Rai said.
“The upheaval of the traditional ‘free trade’ regime represents a setback for global growth and investment that has led to a widespread reassessment of monetary tightening amongst the development market central banks,” he added in his report.
Central bank interest rates, and expectations of where they may be headed, of course, will move currencies.
“The modern marketplace has never had to deal with a large scale trade in the same vein as what we’re seeing now.”
Here’s what Mr. Rai calculated for the loonie: The U.S. versus the Canadian dollar stood at 1.3267 on June 8, meaning the Canadian currency was worth 75.4 U.S. cents.
Mr. Rai put the trade war premium for that currency pair at 1.58 per cent.
Removing the impact of the trade war, the U.S. versus the Canadian dollar would be trading closer to 1.31, or a loonie between 76.2 and 76.5 U.S. cents, Mr. Rai estimated.
“Intuitively, this makes sense given that the [Canadian dollar] is still leveraged to global growth to a degree, and the removal of trade war concern should lift commodity-exporting currencies,” he said later.
Read more
- How trade wars are wounding Canada’s economy
- Trump wants to meet with Xi at G20 amid trade war, but little progress expected
- China says it will ‘never surrender’ as U.S. trade row heats up
- Market strife looms if no one blinks in U.S.-China trade clash
Markets at a glance
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Ottawa rejects Tory amendments
The Liberal government has rejected virtually all amendments that Conservative senators made to the legislation overhauling the review process for major resource projects, and plans to debate a revised bill today, The Globe and Mail’s Shawn McCarthy reports.
In a notice posted overnight, the government outlined its own amendments, which include many that were put forward by the Independent Senate Group but virtually none of the Conservatives’ ones.
The legislation has been a flashpoint for Western anger over the Liberal government’s handling of the resource economy, with industry groups – who mounted a ferocious lobbying campaign - insisting it would preclude new pipelines from ever being built.
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U.S. inflation stable
The bottom line from today’s report on U.S. inflation is the “flexibility” it gives the Federal Reserve in this uncertain climate.
Markets and many economists expect the U.S. central bank to cut rates at some point, and Fed chair Jerome Powell has signaled he’s prepared to do this.
Today’s report showed consumer prices and so-called core prices rising 0.1 per cent in May, with the annual inflation rate dipping to 1.8 per cent.
The Fed’s preferred measure has also been low, noted Royal Bank of Canada senior economist Josh Nye.
“Today’s inflation report keeps the Fed’s options open,” Mr. Nye said.
“With the U.S. economy showing few signs of inflationary pressure (at least from a consumer price standpoint), the central bank has leeway to respond to any slowdown in growth caused by tariffs and trade policy uncertainty,” he added.
“We don’t think the data make enough of a case for rate cuts at this stage, though we are beginning to see cracks in the industrial sector and business investment. Greater evidence of trade headwinds impacting the broader economy would help build the case for a move.”
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Ticker
From Reuters: Facebook Inc. is bringing its Facebook Watch ad service to Canada as the user base grows. About 720 million people monthly and 140 million people daily now spend at least one minute daily on Facebook Watch, it said, as it outlined the expansion of its money-generating Ad Breaks service into Canada and five new languages.
Analysts split on Tesla
From Reuters: Analysts are divided on Tesla Inc.’s chances of meeting delivery and production targets in the months ahead, after comments by chief executive officer Elon Musk at an annual shareholder meeting. Mr. Musk told shareholders Tuesday Tesla was on track to hit its volume production goal for the end of this year and had “a decent shot at a record quarter on every level.”
Ackman said to oppose big merger
From Reuters: William Ackman’s activist hedge fund Pershing Square Capital Management LP is opposing United Technologies Corp.’s planned US$120-billion aerospace merger with defence contractor Raytheon Co., a person familiar with the matter said.
Required Reading
CMHC defends stress test
Canada would need a “calamity” in the housing market to warrant adjusting the mortgage stress test, which is helping affordability, according to the head of Canada’s national housing agency. Janet McFarland and James Bradshaw report.
Raptors fans frustrated
Thousands of Canadians who tried to watch Monday night’s NBA Finals game missed key moments when Rogers Communications Inc.'s streaming service Sportsnet NOW and BCE Inc.'s Bell Fibe television service experienced technical difficulties, Stefanie Marotta writes.
Sad ending
Bombardier’s sale of the CRJ program would be a sad ending to a Canadian success story, columnist Konrad Yakabuski argues.