The Canadian dollar has emerged relatively unscathed from the collapse in crude oil prices over the past few months, and has even managed to enjoy a mini-rally amid the lockdown carnage.
But that’s about to come to an end.
The Canadian dollar gave up some of its gains against the greenback last week, falling 0.5 per cent to 1.40, or 71.30 U.S. cents, on Friday. This morning the loonie was trading 0.11 per cent higher to 71.48 U.S. cents, but there is near- universal consensus that there is weakness ahead for the Canadian dollar.
“We are looking for one more phase of Canadian dollar weakness as we go through Q2 and into Q3, looking for the U.S. dollar to move towards 1.43 (69.9 U.S. cents) against the Canadian dollar,” said George Davis, RBC Capital Markets’ chief technical strategist in foreign exchange trading, in a podcast posted by the bank.
RBC expects Canada’s GDP to contract a jaw-dropping 40 per cent in the second quarter, which would trigger a loonie decline in the medium-term, although a rebound in the third and fourth quarter would likely be supportive.
“It’s probably not going to be a quick, sharp V-shaped type of recovery that people were expecting initially, and so there’s likely going to be a few setbacks along the way, and that will lead to some new Canadian dollar weakness,” Davis said.
By next year, the C-dollar could claw its way back to 1.35 (74 U.S. cents) but there are a number of headwinds ahead, including the U.S. presidential elections.
“With both Trump and Joe Biden seen pro-economy, they will likely both be positive for the U.S. dollar, with Trump having a slight edge,” Davis said. “It will be the bearish for the Canadian dollar.”
Veteran analyst David Rosenberg, who has been bearish on the loonie for some time, says the Canada Mortgage and Housing Corporation’s prediction that home prices could contract 18 per cent could set to unleash dollar weakness.
“I can also tell you if Canadian Mortgage and Housing Corporation is prescient in its forecast for an 18% plunge in Canadian home prices then there is no chance the Canadian dollar will be anywhere near C$1.40 which it just touched in renewed bearish fashion. Sell, Mortimer!,” he said in a tweet.
The Rosenberg Research founder said investors may be underestimating the impact of a property market plunge on the domestic household sector that’s overextended on residential real estate.
Real estate is valued at $2.5 trillion, “which is over 100% of GDP, and it would approximate a $500 billion hit to the ‘wealth effect’ on spending, not to mention increasing financial strains given the record $1.5 trillion mortgage debt outstanding,” Rosenberg said in a note to clients.
While the loonie has rallied in tandem with resurgent oil prices, the commodity rally is vulnerable, especially as U.S.-China tensions hover over the horizon.
“Markets could be pricing in slightly too much optimism as of right now,” said Avery Shenfeld, chief economist at the Canadian Imperial Bank of Commerce.
“As the reality of depressed equity earnings, and the limitations on the recovery by the potential for a second wave set in, that would see a stall in oil’s rebound, allowing USD/CAD to reach 1.41 by June and ending Q3 at 1.43 (69.9 U.S. cents),” Shenfeld said in a note.
Canada’s weak trade record in the last cycle also points to the need for a more competitive exchange rate in the longer-term, as the economy weans itself off of debt-financed consumption and housing as sources of growth, Shenfeld said.
“Look for USD/CAD to still be hovering around 1.41 by the end of next year, held back by the country’s trade imbalance.”
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MILLENNIAL MONEY: Spent is a new column in which the Financial Post’s Victor Ferreira takes an entertaining and insightful look at the financial lives of everyday Canadian millennials. Some toil in lower-paying jobs while others are earning six-figures — what unites them is their desire for more and their everlasting struggle to get it.
In this week’s column, a millennial is dreams of moving out of his dad’s house and leaving the city by banking his CERB cheques. Full column here. Illustration/Brice Hall
In his last week on the job, Bank of Canada governor Stephen Poloz gives the University of Alberta Eric J. Hanson Memorial Lecture by videoconference
U.S. markets are closed for Memorial Day
Joyce Murray, Minister of Digital Government, appears before the House of Commons standing committee on government operations and estimates to discuss the federal response to the COVID-19 pandemic
Cullen Commission, inquiry into money laundering, hearings into an overview of the problem, attempts to quantify the extent and regulatory models
Scotiabank and National Bank will kick off earnings seasons for the big Canadian banks on Tuesday
Retail sales plunged 10 per cent in March when widespread physical distancing measures first took effect. Statistics Canada said preliminary data indicates the decline will be even steeper in April, with early figures suggesting a decline of 15 per cent.
However, the so-called ‘sins’ categories were up rather smartly. Booze sales advance by 17.5 per cent month-on-month and cannabis stores registered a 19.2 per cent m/m gain (the latter is not seasonally adjusted due to a lack of history).
“Apparently the munchies may have helped food sales!,” writes Scotiabank.
Recent stock market volatility has put a spotlight on daily market movements for people who would not normally pay such close attention to their portfolio. Setting appropriate expectations about investment returns is important for investors and advisors. These expectations depend on several factors and impact investment and financial planning decisions, writes Jason Heath.
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
