TSX back into black

Loonie stays below 70 cents U.S.

The Guardian (Charlottetown) - - BUSINESS - BY PETER HEN­DER­SON

Af­ter days of steep losses, the Toronto stock mar­ket el­bowed its way back into the black Thurs­day while the Cana­dian dol­lar weak­ened amid spec­u­la­tion that the Bank of Canada will cut its key in­ter­est rate next week.

The Cana­dian dol­lar was locked below 70 cents U.S. all day de­spite a small bump in the price of oil, los­ing .08 of a cent to set­tle at 69.63 cents U.S.

In re­cent weeks, the com­mod­ity-sen­si­tive loonie has plunged as has oil, both of which have dropped to lev­els not seen since 2003 on con­cerns about a sup­ply glut and a slow­ing Chi­nese econ­omy.

Oil rose 72 cents to US$31.20 a bar­rel, but that's still marks an 18 per cent slide since Christ­mas Eve.

Craig Jerusalim, port­fo­lio man­ager at CIBC As­set Man­age­ment, said that while the de­clin­ing oil price has dragged down the loonie, the cur­rency's weak­ness over the past month is due more to the widen­ing gap in mon­e­tary pol­icy be­tween Canada and the United States.

The Bank of Canada has cut in­ter­est rates twice over the past year, and some mar­ket watch­ers are an­tic­i­pat­ing an­other cut next Wed­nes­day.

At the same time, the U.S. Fed­eral Re­serve has made pos­i­tive state­ments about the re­cov­er­ing Amer­i­can econ­omy and raised its own bench­mark in­ter­est rates in De­cem­ber from the near-zero lev­els they had held since the fi­nan­cial cri­sis.

“We had a long pe­riod of time where the Cana­dian dol­lar over­shot on the up­side when it was trad­ing well above par, and now we are likely trad­ing well below a fair fun­da­men­tal value,” he said.

Pre­dic­tions of a loonie below 65 cents U.S. or oil at US$20 a bar­rel are over­stat­ing the case, he said, but mar­ket sen­ti­ment will re­main neg­a­tive un­til oil prices sta­bi­lize and the Bank of Canada clears up spec­u­la­tion about its mon­e­tary pol­icy.

“As long as the ex­pec­ta­tions are that the Bank of Canada is go­ing to cut while the Fed is go­ing to raise in­ter­est rates, the Cana­dian dol­lar could over­shoot on the down­side,” Jerusalim said. The S&P/TSX com­pos­ite in­dex ended the day up 165.62 points at 12,336.03, though it re­mains beaten down from heavy losses suf­fered over the last two weeks, in­clud­ing a 200-point loss on Wed­nes­day.

Even with Thurs­day's tripledigit gain, the Toronto mar­ket has lost more than 900 points, or 7.1 per cent, since the Christ­mas break.

AP PHOTO

Trader John Panin works on the floor of the New York Stock Ex­change Thurs­day. U.S. stocks moved slightly lower in early trad­ing Thurs­day, ex­tend­ing losses fol­low­ing the worst mar­ket drop since Septem­ber. In­vestors had their eye on the lat­est com­pany earn­ings and out­looks. Con­sumer dis­cre­tionary stocks were among the big­gest de­clin­ers.

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