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Dollar hits parity, pulls back Currency markets are tossing and turning again today. The Canadian dollar climbed past parity with the greenback this morning before pulling back slightly as the U.S. currency weakened again and commodity prices shot higher, with gold touching a fresh high.
The loonie hit a high of $1.0019 U.S., then slipped back to just below parity. It's not so much that the Canadian currency is rising as it is the U.S. dollar falling, noted Scotia Capital currency strategist Camilla Sutton. In fact, the loonie has underperformed compared to other major currencies. The greenback today fell to a new 15-year low against the yen, for example, and the Australian dollar also closed in on parity, a level it hasn't hit in almost three decades.
"The last time the currency moved through parity was in early April of this year," Ms. Sutton said. "That move was based on a strong [Canadian dollar]fundamental outlook (strong sovereign position, outperforming domestic fundamentals, the expectation for [Bank of Canada] interest rate hikes, and bullish investor sentiment).
"This most recent move has actually been on the back of weakening [Canadian dollar]fundamentals (Canada's close ties to the U.S. are weighing on the growth outlook and the BoC is not expected to raise interest rates again until the second half of 2011). This implies that [the Canadian dollar]should continue to strengthen until the broadly based [U.S. dollar] weakness completes. By our estimates there is still further to go."
Also driving currency markets was a surprise move by Singapore's central bank to widen the trading band for its currency, allowing it to appreciate more amid concerns over inflation.
What promise of QE2 is doing Helping to drive the U.S. dollar and stocks up is the expected move by the Federal Reserve on another round of intervention, or quantitative easing, which has been dubbed QE2 by economists.
Here's how Scotia Capital economists Derek Holt and Gorica Djeric put it today: "Despite many assertions to the contrary, QE2 continues to be priced into markets and the risk remains that of overshooting particularly in currency markets that are prone to do so. [Canadian dollar]strength also proves the point that one needn't have [Bank of Canada]ightening to drive the currency. It's being driven by U.S. efforts to export its years of profligacy to its trading partners and blame everyone else in a process engineered through debasement of the greenback."
Trade deficit narrows Canadian exports to the United States rebounded in August, driving up overall exports and helping to cut what had been a record trade deficit by much more than expected.
Exports to the United States, whose recovery is faltering in a development expected to hit Canada, climbed 2.7 per cent, Statistics Canada said today. Overall exports, to all countries, jumped 3.1 per cent and imports slipped 0.5 per cent. That brought the trade deficit down from July's record $2.6-billion to $1.35-billion.
The trade surplus with the United States, Canada's biggest trading partner, surged to $2.9-billion from $1.5-billion for the first increase since December of 2009.
"While this reversed course slightly in August, a heightened Canadian dollar in tandem with moribund growth in the U.S. mean that net exports are unlikely to become a major source of strength in the near-term," said Toronto-Dominion Bank economist Francis Fong.
U.S. trade gap widens While U.S. trade numbers today aren't as bad as they appear at first blush, a surge in imports from China promises to fuel the controversy over Beijing's currency policy.
Imports from China climbed 6.1 per cent in August, hitting a record $35.3-billion, while the U.S.-China trade gap also set a new high of $28-billion.
The United States and other countries have been pressing China to allow its yuan to appreciate, amid a backdrop of escalating tensions worldwide over foreign exchange rates.
"The widening in the U.S. international trade deficit in August, and in particular the jump in the bilateral trade with China to a record high, will fuel growing fears of a currency war," said Paul Dales, U.S. economist at Capital Economics in Toronto.
"... The rise in the seasonally-unadjusted bilateral trade deficit with China from $25.9-billion to a new record high of $28-billion will only irk Congress further. Even after applying our own seasonal adjustment, August's deficit of $25.5-billion is the second-highest on record even though America's economy is still badly underperforming. Calls for action against China are only likely to get louder."
Part of the reason for the widening overall deficit, though, was related to companies investing in new equipment from overseas. On top of that, U.S. exports are now at their highest in about two years.
Foreclosure scandal widens The U.S. foreclosure scandal continues to grow, casting a pall on the embattled real estate industry.
While several banks have halted foreclosure sales amid allegations that "robo-signers" did a rush job on documents, Wells Fargo & Co. has not, stressing there are no problems with the processes it uses.
The Financial Times reports today that it has reviewed a sworn deposition by one of Wells Fargo's loan documentation officers who says she signed up to 500 related documents a day for the bank, and that all she verified was whether her name, and her title, were correct. Asked if she checked the accuracy of the principal and interest that the mortgage lender claimed was owed, she said "I do not," according to the newspaper.
The woman was deposed in March as part of a lawsuit in Florida. Wells Fargo would not comment on the officer's deposition but said its affidavits are accurate.
Separately today, The Wall Street Journal raises questions about the roles of Fannie Mae and Freddie Mac, which are government owned and are going back over the work of a law firm they recommended to process evictions.
The two companies do not directly service loans but do use what the Journal referred to as foreclosure mills, law firms whose specialty is processing foreclosures.
Questions over reports of improper documentation in foreclosures have led to moratoriums on foreclosure sales by some lenders, and, yesterday, a co-ordinated probe by the attorneys general of all 50 states. The scandal could affect millions of Americans and cost billions of dollars because of the delay in sales.
Strikes hit French refining Social unrest is again taking its toll in Europe. Reports from France today say strikes across the country have sidelined oil refining, with just one of 12 operations functioning. French workers are protesting the government's pension reform measures, which include raising the official retirement age. Protests also continued in Greece today.
A tale of two jobless rates Quebec's unemployment rate has retreated at a much faster pace than Ontario's and sits almost at pre-recession levels, BMO Nesbitt Burns notes. Ontario's jobless level has "drifted down" to 8.8 per cent in the last year while Quebec's has declined to 7.7 per cent.
"That relative outperformance is also reflected in trends among Canada's two largest cities - Montreal's jobless rate is now decisively and consistently below that of Toronto for the first time in more than two decades of data (and likely going back much further than that," Mr. Porter wrote.
"Both cities have jobless rates above the national average (Montreal is at 8.5 per cent, and Toronto is now at 9.2 per cent versus Canada's 8 per cent. But Montreal is well below its long-run average in a clear reversal of fortune."
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And, read our Streetwise blog and Your Business section.