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




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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CANADA STOCKS – TSX ends flat at 19,228.03



* The Toronto Stock Exchange’s TSX falls 0.00 percent to 19,228.03

* Leading the index were Corus Entertainment Inc <CJRb.TO​>, up 7.0%, Methanex Corp​, up 6.4%, and Canaccord Genuity Group Inc​, higher by 5.5%.

* Lagging shares were Denison Mines Corp​​, down 7.0%, Trillium Therapeutics Inc​, down 7.0%, and Nexgen Energy Ltd​, lower by 5.7%.

* On the TSX 93 issues rose and 128 fell as a 0.7-to-1 ratio favored decliners. There were 26 new highs and no new lows, with total volume of 183.7 million shares.

* The most heavily traded shares by volume were Toronto-dominion Bank, Nutrien Ltd and Organigram Holdings Inc.

* The TSX’s energy group fell 1.61 points, or 1.4%, while the financials sector climbed 0.67 points, or 0.2%.

* West Texas Intermediate crude futures fell 0.44%, or $0.26, to $59.34 a barrel. Brent crude  fell 0.24%, or $0.15, to $63.05 [O/R]

* The TSX is up 10.3% for the year.

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Canadian dollar outshines G10 peers, boosted by jobs surge



Canadian dollar

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar advanced against its broadly stronger U.S. counterpart on Friday as data showing the economy added far more jobs than expected in March offset lower oil prices, with the loonie also gaining for the week.

Canada added 303,100 jobs in March, triple analyst expectations, driven by the recovery across sectors hit by shutdowns in December and January to curb the new coronavirus.

“The Canadian economy keeps beating expectations,” said Michael Goshko, corporate risk manager at Western Union Business Solutions. “It seems like the economy is adapting to these closures and restrictions.”

Stronger-than-expected economic growth could pull forward the timing of the first interest rate hike by the Bank of Canada, Goshko said.

The central bank has signaled that its benchmark rate will stay at a record low of 0.25% until 2023. It is due to update its economic forecasts on April 21, when some analysts expect it to cut bond purchases.

The Canadian dollar was trading 0.3% higher at 1.2530 to the greenback, or 79.81 U.S. cents, the biggest gain among G10 currencies. For the week, it was also up 0.3%.

Still, speculators have cut their bullish bets on the Canadian dollar to the lowest since December, data from the U.S. Commodity Futures Trading Commission showed. As of April 6, net long positions had fallen to 2,690 contracts from 6,518 in the prior week.

The price of oil, one of Canada‘s major exports, was pressured by rising supplies from major producers. U.S. crude prices settled 0.5% lower at $59.32 a barrel, while the U.S. dollar gained ground against a basket of major currencies, supported by higher U.S. Treasury yields.

Canadian government bond yields also climbed and the curve steepened, with the 10-year up 4.1 basis points at 1.502%.


(Reporting by Fergal Smith; Editing by Andrea Ricci)

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Canadian dollar rebounds from one-week low ahead of jobs data



Canadian dollar

By Fergal Smith

TORONTO (Reuters) -The Canadian dollar strengthened against its U.S. counterpart on Thursday, recovering from a one-week low the day before, as the level of oil prices bolstered the medium-term outlook for the currency and ahead of domestic jobs data on Friday.

The Canadian dollar was trading 0.4% higher at 1.2560 to the greenback, or 79.62 U.S. cents. On Wednesday, it touched its weakest intraday level since March 31 at 1.2634.

“We have seen partial retracement from the decline over the last couple of days,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.

“With oil prices where they are – let’s call WCS still at roughly $49 a barrel – I still think CAD has room to strengthen over the medium term and even over a one-week horizon.”

Western Canadian Select (WCS), the heavy blend of oil that Canada produces, trades at a discount to the U.S. benchmark. U.S. crude futures settled 0.3% lower at $59.60 a barrel, but were up nearly 80% since last November.

The S&P 500 closed at a record high as Treasury yields fell following softer-than-anticipated labor market data, while the U.S. dollar fell to a two-week low against a basket of major currencies.

Canada‘s employment report for March, due on Friday, could offer clues on the Bank of Canada‘s policy outlook. The central bank has become more upbeat about prospects for economic growth, while some strategists expect it to cut bond purchases at its next interest rate announcement on April 21.

On a more cautious note for the economy, Ontario, Canada‘s most populous province, initiated a four-week stay-at-home order as it battles a third wave of the COVID-19 pandemic.

Canadian government bond yields were lower across a flatter curve in sympathy with U.S. Treasuries. The 10-year fell 3.3 basis points to 1.469%.

(Reporting by Fergal Smith;Editing by Alison Williams and Jonathan Oatis)

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