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Canadian Dollar Outlook Deteriorates after January BOC Rate Decision – DailyFX

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USD/CAD Rate Forecast Overview:

  • A stark change in tone from the BOC from just earlier this month caught traders by surprise, sending the Canadian Dollar tumbling across the board.
  • USD/CAD rates have entered a short-term reversal scenario, although the longer-term outlook remains clouded thanks to a key technical development at the end of 2019.
  • According to the IG Client Sentiment Index, USD/CAD rates have a bearish trading bias.

Recommended by Christopher Vecchio, CFA

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Canadian Dollar Falls After BOC Meeting

The Canadian Dollar endured a meaningful setback following surprise commentary at the January Bank of Canada rate decision. After striking an optimistic tone at the start of the year, noting that the Canadian economy had weathered the US-China trade war, BOC Governor Stephen Poloz effectively took a sentiment U-turn in noting that policymakers were uncertain if the recent slowdown in Canadian economic data was temporary or due to global factors.

Rate Cut Expectations Rise After Poloz Comments

Traders were caught off guard, largely expecting an anodyne BOC rate decision in light of the fact that interest rate markets were subdued: ahead of the January BOC meeting, traders were pricing in one 25-bps interest rate cut in 2020, due for October. Dour commentary coupled with a revision to the 2020 and 2021 GDP forecasts – the BOC sees the Canadian economy growing by 1.6% from 1.7% in 2020, and at 2% from 1.8% in 2021 – has provoked a material repricing of BOC rate cut odds.

Bank of Canada Interest Rate Expectations (January 22, 2020) (Table 1)

According to Canada overnight index swaps, rates markets are now pricing in an implied probability of 64% for the a 25-bps rate cut to come at the July BOC meeting – two months earlier than previously anticipated. Similarly, there is now a 35% chance that a second 25-bps rate cut comes at the October BOC meeting. At the start of 2020, rates markets did not have any interest rate cuts priced-in for 2020; this has been a dramatic escalation in a few weeks time.

USD/CAD Rate Technical Analysis: Daily Chart (January 2019 to January 2020) (Chart 1)

USD/CAD rates are working on a bullish outside engulfing bar today, suggesting further gains in the days ahead. Having cleared out the former monthly high set on January 9 at 1.3103, USD/CAD rates have a near-term bullish bias as a reversal within the congestion dating back to July transpires. A full-scale reversal within the sideways range would call for USD/CAD rates to climb back towards the mid-1.3300s over the coming sessions.

However, there are longer-term technical considerations in play that may curtail a significant reversal. The weekly chart offers important insight for traders, short-term and long-term alike.

USD/CAD Rate Technical Analysis: Weekly Chart (September 2012 to January 2020) (Chart 2)

USD/CAD rates recently rebounded from the 61.8% retracement of the 2016 high to 2018 low range at 1.3065. While the return to the consolidation in place since July suggests a reversal towards 1.3350 is possible, traders may want to curb their enthusiasm for the time being: USD/CAD remains below the rising trendline dating back to the 2012 low.

This trendline comes into play closer towards 1.3225 through the rest of this week; failure here would signify that USD/CAD’s longer-term topping efforts may still be valid. To this end, however, if USD/CAD rates are able to clear 1.3225, we would begin to consider price action in recent months a “false breakout” scenario, ultimately calling for not only a return to 1.3350, but the beginning stages of a longer-term march higher towards the 2016 high at 1.4690.

IG Client Sentiment Index: USD/CAD Rate Forecast (January 22, 2020) (Chart 3)

USD/CAD: Retail trader data shows 58.81% of traders are net-long with the ratio of traders long to short at 1.43 to 1. The number of traders net-long is 8.39% higher than yesterday and 1.82% higher from last week, while the number of traders net-short is 12.62% lower than yesterday and 3.02% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall.

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/CAD-bearish contrarian trading bias.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

Follow him on Twitter at @CVecchioFX

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Japan’s SoftBank returns to profit after gains at Vision Fund and other investments

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TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.

Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.

Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).

SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.

The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.

WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.

SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.

SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.

SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.

The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.

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Yuri Kageyama is on X:

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Trump campaign promises unlikely to harm entrepreneurship: Shopify CFO

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Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.

“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.

“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”

Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.

On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.

If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.

These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.

If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.

However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.

He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.

“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.

Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.

The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.

Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.

Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.

Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.

Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.

Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”

In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.

“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.

This report by The Canadian Press was first published Nov. 12, 2024.

Companies in this story: (TSX:SHOP)

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RioCan cuts nearly 10 per cent staff in efficiency push as condo market slows

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TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.

The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.

The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.

RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.

The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.

RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.

This report by The Canadian Press was first published Nov. 12, 2024.

Companies in this story: (TSX:REI.UN)

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