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Economy

Dollar Value Could Slide This Year As Global Economy Picks Up After Covid, Analysts Say – Forbes

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The strength of the U.S. dollar may start to slip during the remainder of 2021 as the U.S. and global economies improve following the worst of the Covid-19 pandemic, according to a research note released Wednesday by UBS and echoed by analysts who told Forbes low interest rates in the U.S. and growing consumer and business interest in buying foreign goods could dampen the greenback.

Key Facts

The DXY Dollar Index – a measure of the value of the U.S. dollar against currencies of major U.S. trade partners, including the euro and pound sterling – has climbed about 3.5% year to date, after dropping about 7.1% last year.

The rise of the dollar has been accompanied by an almost doubling of the 10-Year Treasury yield year to date — higher yields (reflecting optimism for higher U.S. economic growth rates and the likelihood of higher inflation) tend to increase demand for U.S. Treasuries from foreign buyers whose domestic bonds in many cases offer lower or even negative yields.

But in a research note published Wednesday, Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote he expects the dollar to slide this year – he thinks the euro will equal $1.25 by year-end (up from $1.18 currently); and the pound sterling will equal $1.49 by year end (up from $1.38 currently).

Haefele explained the dollar is likely to slip versus the euro because he expects economic growth to accelerate in Europe and elsewhere as “the pace of vaccinations picks up in the Eurozone,” noting that a “broad-based global recovery” typically supports the euro.

Concurrently, Haefele noted, “robust” U.S. economic growth should benefit the currencies of foreign exporters and commodity producers because they will likely appreciate in value against the dollar as “investors abandon the safe-haven [of U.S. assets] and explore [assets] outside the U.S.”

Haefele also said that he expects the Federal Reserve to keep interest rates low for an extended period of time (low interest rates tend to pressure the dollar lower as investors seek higher-yielding foreign currencies).

Key Background

John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, told Forbes he also thinks the dollar rally will weaken this year as he does not expect Treasury yields to rise much further. A strengthening U.S. economy, Stoltzfus explains, typically hurts the dollar because more U.S. businesses and individuals can buy foreign goods and assets, thereby increasing the value of currencies of exporting countries. “This has already begun to take place,” he adds. John Herrmann, U.S. rates strategist at Mitsubishi UFJ Financial Group, told Forbes that for the remainder of the year, either the pace of the dollar’s gains may likely slow down, or it possibly could even reverse course and decline – depending on the relative strengths of the U.S. and foreign economies. “Will the U.S. economy and vaccine programs continue to outperform upon a relative basis, or, will foreign nations ultimately turn around their management of the pandemic and, in so doing, strengthen their economic prospects,” he offered.  The Fed also will play a major role in determining the fate of the dollar. Brian Rose, a senior economist at UBS, told Forbes the Fed is likely to keep rates near zero through the end of 2023. “Unless the Fed is hiking rates, larger budget and trade deficits [meaning the U.S. buys more imports than it exports] should hurt the dollar,” he adds. 

What To Watch For 

Shahab Jalinoos, chief foreign exchange and rates strategist at Credit Suisse, told Forbes that profits generated by multinational exporters can be hurt by a stronger dollar because it can make U.S. exports more uncompetitive and therefore hurt revenues, though overall global demand is a more important factor. Lower imports costs are an offset too. “We would not expect a material net profits impact one way or another while the US dollar is in a range of plus or minus 10% from current levels… as these levels are not seen as either especially cheap or expensive on a long term basis,” he added.

Surprising Fact

While the dollar is up so far this year, the DYX Dollar Index is actually down about 6.8% over the past 12 months. “This indicates that the dollar had already begun to weaken as the pandemic risk was perceived to be reduced by the scale of the U.S. response and anticipation of vaccines of greater efficacy to counter the spread of Covid-19,” Stoltzfus says.

Further Reading

The Consensus On The U.S. Dollar Is Too Bearish (Forbes)

What ‘Backs’ The Dollar? Easy: Production (Forbes)

Could Bitcoin Replace The U.S. Dollar? (Forbes)

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Economy

Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.

Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.

Business, building and support services saw the largest gain in employment.

Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.

Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.

Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.

Friday’s report also shed some light on the financial health of households.

According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.

That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.

People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.

That compares with just under a quarter of those living in an owned home by a household member.

Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.

That compares with about three in 10 more established immigrants and one in four of people born in Canada.

This report by The Canadian Press was first published Nov. 8, 2024.

The Canadian Press. All rights reserved.

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Economy

Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.

The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.

CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.

This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.

While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.

Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.

The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.

This report by The Canadian Press was first published Nov. 7, 2024.

Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.

The Canadian Press. All rights reserved.

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Economy

Trump’s victory sparks concerns over ripple effect on Canadian economy

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As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.

Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

More than 77 per cent of Canadian exports go to the U.S.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.

With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

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