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Canadian Currency
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Of Note:

The continuing depressed commodities markets, such as oil and gas presents a major hurdle for
the loonie to overcome.

"I can see the Canadian dollar trade closer to 70 cents (U.S.) if these themes continue to play out... "

Investors should consider picking stocks of companies that will benefit from a weaker dollar.


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Slowing economy likely to push loonie lower

Monday, January 19, 2009
ALLAN ROBINSON

The Canadian dollar doesn't have much going for it these days and there are a few companies that could take advantage of any future weakness.

The anticipated rate cut tomorrow by the Bank of Canada is just one negative. The continuing depressed commodities markets, such as oil and gas, also present a major hurdle for the loonie to overcome.

"It would not be surprising to see some weakness in the [Canadian] dollar," said Dustin Reid, a foreign exchange strategist and Canadian economist for RBS Global Banking and Markets in Chicago. "I can see the Canadian dollar trade closer to 70 cents (U.S.) if these themes continue to play out as I expect them to."

The Canadian dollar traded late last week at almost 80 cents.

Although the Commodity Research Bureau index is up about 5 per cent from its cyclical lows in late 2008, commodities remain at depressed levels.

Many traders look at the Canadian dollar through the global lens and the perceived safety of the U.S. dollar. "For us the foreign exchange markets are taking their cue from the broader global markets," said Gareth Sylvester, a currency strategist with foreign-exchange risk adviser HiFX Inc. "Over all, it's all about risk aversion and tolerance to risk."

The U.S. dollar should continue to remain strong, Mr. Sylvester said. "It's really a U.S. dollar story and that's paramount. Commodities are having a small role right now," he said.

The strength in the U.S. dollar also suggests currency traders are looking beyond the weak economy and will likely continue to ignore the expectedly weak housing starts, building permits, house price and jobless claims data due out this week.

And the outlook for oil, which had provided support for the Canadian dollar, remains gloomy.

The International Energy Agency last week cut its forecast for the global demand for oil in 2009, which would be the first back-to-back contractions since 1983, according to Bloomberg. Last week crude oil fell from about $41 (U.S.) a barrel to about $33.20 before bouncing back to $36.51.

Despite the plunge in commodity prices, the loonie has held in well, but 74 cents to 77 cents would be closer to fair value, said George Vasic, a strategist with UBS Securities Canada Inc.

Investors should consider picking stocks of companies that will benefit from a weaker dollar.

"To start with, the strong 96-per-cent Canadian-dollar/commodity correlation means potential winners lie outside the energy and materials sectors, since [the loonie] declines only provide a partial offset to the drops in commodity prices," he said in a report to clients.

Seven Canadian companies that could potentially benefit from a weaker dollar are:

Canadian National Railway Co.,
Bombardier Inc.,
Canadian Pacific Railway Ltd.,
Gildan Activewear Inc.,
Alimentation Couche-Tard Inc.,
Bank of Nova Scotia and
Cogeco Cable Inc.,


UBS Securities said.

http://www.globeadvisor.com/servlet/ArticleNews/story/gam/20090119/RBELL19

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