Loonie takes a dive after Bank of Canada cuts interest rate

After Canada's central bank, the Bank of Canada, cut the bank rate from 1.0 percent to .75 percent, the Canadian dollar, the loonie, fell to its lowest level against the US dollar since 2011.

This morning, January 23, the loonie was still trading below 81 cents to the US dollar. The Bank of Canada rate cut caught markets by surprise as no economists had been predicting the drop at this time, although many were beginning to see a drop later in the year if economic growth remained sluggish. A statement from the bank said: “This decision is in response to the recent sharp drop in oil prices, which will be negative for growth and underlying inflation in Canada, The bank's policy action is intended to provide insurance against these risks, support the sectoral adjustment needed to strengthen investment and growth, and bring the Canadian economy back to full capacity and inflation to target within the projected horizon." The rate drop was made as both the bank and the IMF predicted lower growth in Canada in 2015. The sudden drop was no doubt part of the reason the loonie's value declined so quickly.

Many of Canada's exporting companies will benefit from the lowered value of the dollar. American companies buying from Canadian companies will find that their dollar buys more as the US dollar strengthens and the Canadian dollar is worth less. The lower loonie is a mixed blessing though as Canadian consumers will have to pay more for imported U.S. goods. The move to quantitative easing in the EU also drove down the value of the Euro. It would seem that there may be moves in many countries to cut the value of their currencies so as to improve their export positions.

 The U.S. dollar at the same time is remaining quite strong. This will be a great boon for U.S. consumers as imports will be cheap. U.S. exporters may find that there is less demand for some of their goods as they will be higher in price than those of foreign competitors. Sebastien Galy of Societe Generale said: "The Bank of Canada has taken the bull by the horn deciding to target a weaker CAD. It is a surprise so early but indicates the emphasis on adjusting the CAD for a very sharp reversal in its terms of trade gains since 2002 (oil)." While Greg Moore, of RBC Dominion Securities, did not think that the bank head, Stephen Poloz, deliberately attempted to weaken the loonie further, he admitted that Poloz did see a lower currency as an important part of the recovery. Galy expects that the loonie will reach 80 cents and perhaps even 78 cents.

Lower currency prices are not necessarily a boon for a country. The fall in value of the ruble is a disaster for Russia. While it makes exports cheaper, as the price of a main export oil tumbles and it faces economic sanctions, economic growth slows and costs of imports soar. Countries such as China reap an economic windfall as the prices of its gas and oil imports from Russia drop. The U.S. does not complain about the precipitous drop in the value of the Russian ruble. On the other hand, the US constantly complains that China continues to keep the value of its currency low to make its exports more competitive. Even last April, the US was still making noises about Chinese currency manipulation: However, the Treasury expressed concern about recent reports of Beijing's "heavy intervention" to keep the value of the currency low to gain trade advantages. A weaker yuan makes Chinese goods cheaper for Americans and makes U.S. goods more expensive for Chinese, giving an advantage to Chinese exporters. So far, there have been no complaints about the Canadian move. In the case of Canada the lower dollar will make the raw materials that are among the prime exports of Canada to the US cheaper so the move helps the U.S., but imports from China are mainly manufactured goods I would expect.

 Other exporting countries such as Australia may decide to follow the Canadian example to lower the value of their currencies to remain competitive globally and increase exports. Shares of exporters, such as West Fraser Timber Co. climbed after the rate cut and the fall of the loonie. The TSX index rose 1.8 percent after the cut as well. Some exporters price their goods in US dollars. David Garofalo, CEO of HudBay Minerals Inc. said: “For companies like ourselves that have operating costs denominated in Canadian dollars and revenues in U.S. dollars, it is a win.” For U.S. retailers close to the Canadian border who benefit from increased Canadian shopping the fall in the loonie will be a definite loss.

Target Canada to begin stock liquidation in stores in February

Target Canada informed its customers that it will begin to liquidate stock from its Canadian stores early in February. Target announced last week it would shut all its 133 stores in Canada soon.

Eric Hausman, the Target spokesperson for Canada, said to CBC: "Nothing definitive yet in terms of liquidation timing [but] we do expect it will begin in about 2-3 weeks." Within four to five months, both its stores and distribution centers in Canada will be history. The chain, owned in the US, will need to move quickly not only to move all its merchandise but fixtures and office supplies. CBC reporters on the ground saw full stores and even lineups but so far there have been no heavy discounting of goods.

The chain has more than 17,000 employees in Canada and the company claims there is a trust fund of $70 million to provide employees severance pay. When the closure was announced Target issued a statement about the fund: "The Employee Trust will provide all eligible Target Canada-based team members with a minimum of 16 weeks of compensation, including wages and benefit coverage for those team members who are not required for the full wind-down period." Target launched it operations in Canada less than two years ago in March of 2013.

Many customers expressed disappointment at the prices which often were not very competitive with competing chains such as Wal-Mart, or Canadian Tire. The chain had problems with distribution as well and shelves were often not well stocked. Mandeep Malik, a retail analyst from McMaster Univerity said: 'I think they overestimated the reception they would get.' In its first year of operation alone the company lost $1 billion. Even though losses were shrinking of late, the chain decided to cut its losses and leave. As recently as last July, the executives at Target spoke of still being committed to staying in Canada.

US retailer Aeropostale, which expanded into Canada a decade ago, is also closing 77 of its Canadian stores. Sam's Club, a division of Wal-Mart, also closed its stores Big Lots, another US chain, closed its Canadian stores in February of last year. Wal-Mart also axed 200 jobs at its Canadian head office last November. Fashion chain Mexx Canada is closing all of its 95 stores in Canada by the end of February.

The liquidation of Target stock is expected to take between 16 to 20 weeks with no returns being accepted. Target estimates closing will cost it about $600 million dollars. Nordstrom Inc.an upscale US fashion chain opened its first Canadian store in Calgary just last September. In spite of the fact that the Calgary store may be hurt by Alberta's dependence on income from oil, it intends to open new stores in Ottawa and Vancouver.

Bank of Canada surprises markets with rate drop

In a surprise move, Canada's central bank, the Bank of Canada, reduced the overnight lending rate by a quarter of a percentage point. The reason given was the threat to the economy of plunging oil prices.

The move by the Bank reduced the lending rate from 1.0 percent to 0.75 percent. The Bank governor Stephen Poloz said: "The drop in oil prices is unambiguously negative for the Canadian economy. Canada's income from oil exports will be reduced, and investment and employment in the energy sector are already being cut." While the overall effect of the drop in oil prices may be negative, the impact will vary from province to province. With its huge oil resources, Alberta will suffer a significant drop in income from royalties and a decline in economic activity in the oil patch, but other provinces with industries that use oil welcome the lower prices for inputs. Consumers, airlines, truckers, and cabbies will be cheering the downward trend in fuel prices.

 The Toronto Stock Market (TSX) was up almost 300 points not long after the announcement. No doubt the reduced rate will be expected to boost consumer demand and help raise the level of economic activity. Almost no economists had been predicting the rate cut at this time but more were suggesting it could happen in the future. 

The rate decrease, follows upon a recent downgrading of both global growth and Canadian growth in the World Economic Outlook for 2015 published by the IMF. The forecast reduced global growth rates by 0.3 percent to 3.5 percent in 2015 and 3.7 percent in 2016. Canada's growth was downgraded 0.1 percent to 2.3 percent for 2015 and even more 0.3 percent for 2016 to just 2.1 percent. The drop in oil prices by about 50 percent since September 2014 was cited as the main reason for the IMF downgrade. In June of last year oil was at $105 US a barrel but now is well below $50 a barrel. The Bank of Canada also downgraded its prediction for Canada's growth in 2015 from 2.4 percent to 2.1 percent even lower than the IMF prediction, although contrary to the IMF, it sees a rise to 2.4 percent in 2016. 

The Bank made its projection on the assumption that oil prices will average about $60 dollars a barrel over the next two years. Derek Burleton, an economist at TD Bank said: "It is a significant move. It does show the Bank of Canada is worried about the big drop in the price of oil ... and what kind of uncertainty that poses in the next few quarters. I don't think they are panicking but I do think they're concerned about some of the uncertainty the recent slump in the price of oil does create for the economy." BMO economist, Michael Gregory, said: "Today’s BoC rate cut smacks of being a one-time 'insurance' move but in his presser, Governor Poloz indicated that if the world changes again (adversely for Canada) the Bank could take out more insurance."  

The Bank predicts that the lower oil and energy prices will reduce inflation at least temporarily but over the projected two year period will again approach the target two percent level. The Canadian dollar, the loonie, is trending much lower. BNN reports: Charles St-Arnaud, senior economist at Nomura Securities International Inc., said the drop in crude will prompt the central bank to lower its growth forecast by 0.5 percent.The loonie depreciated 1.4 percent to $82.55 cents US in Toronto Tuesday, at one point touching its weakest level since April 2009. Nomura forecasts it will reach 80 cents US by the middle of the year. The lower loonie will help Canadian exporters but imports from the US will rise in price and the flow of shoppers across the border may slow considerably as the loonie declines in value against the US dollar.

Canada trying to free Al Jazeera Egyptian-Canadian journalist held in Egypt

Canadian Foreign Affairs Minister John Baird left for Egypt Monday bound for Egypt. He is expected to be in Cairo this Thursday. He will meet with government officials in an attempt to obtain the release of Mohamed Fahmy an Egyptian-Canadian journalist. Baird will discuss Fahmy's imprisonment with the Egyptian foreign minister, religious leaders, and even President el-Sisi.

 Fahmy's parents moved to Canada from Egypt in 1991 and Fahmy became a Canadian with them. Fahmy is a television producer. He worked not only for Al Jazeera but for CNN. When he was arrested back in December of 2013 he was the Cairo bureau chief for Al Jazeera.

Under President el-Sisi, Egypt has passed draconian anti-terror laws that repress free speech. Other laws have resulted in the Muslim Brotherhood being declared a terrorist group. Anyone who writes anything positive about the group or criticizes the draconian actions against them is liable to be tried and convicted under anti-terror laws.

 When Fahmy was arrested, he was accused of spreading false news and of supporting the Muslim Brotherhood. His lawyers are attempting to have him released and deported to Canada. His fiancee, Marwa Omara, maintains that Fahmy is innocent. She has managed to obtain a visa to travel with Fahmy back to Canada should he be released. Recently, an Egyptian appeals court ordered a retrial of three imprisoned Al Jazeera journalists one of whom is Fahmy.

 Under a new law passed in Egypt in November, foreigners who are convicted or are suspects can be deported to their own countries for trial or sentencing. Fahmy's family hopes that this will happen in the case of Fahmy. An Egyptian official told the family that arrangement for the deportation of Fahmy to Canada was in its final phase.

Baird has previously claimed that Canada has been working behind the scenes to obtain Fahmy's release. Baird has had several meetings with Egyptian officials during which he has worked for Fahmy's release. Fahmy has been imprisoned for more than a year now. He was sentenced originally to seven years. According to a report on CTVnews Fahmy would have to agree to give up his Egyptian citizenship if he is deported to Canada. Al Jazeera has always denied the charges against Fahmy and his two colleagues. According to Al Jazeera, the three were arrested just for doing their job.

January 11th: 200th anniversary of birth of first Canadian prime minister

Canadian Prime Minister Stephen Harper celebrated the 200th anniversary of the birth of the first Canadian Prime Minister John A. Macdonald at the City Hall in Kingston Ontario.

Harper told the assembled crowd of dignitaries that what you do is more important than where you are from of who you know. The event was non-partisan with former Liberal prime minister John Turner at the event. However, Harper's remarks about it not mattering who you are or where you are from might possibly have been a subtle dig at Liberal leader Justin Trudeau whose name has a high profile in Canada as his father Pierre Trudeau was himself a former Prime Minister of Canada. Harper claimed that Macdonald produced much good though little was expected of him. He also praised Macdonald for his vision and leadership, but did acknowledge that he was at times a heavy drinker. Harper avoided the large media group at the event and would not take any questions from reporters. 

 One of the questions that might have been asked of Harper is what he thought of Macdonald's attitude towards aboriginal peoples and Chinese immigrants. Doug Cuthand resident of Saskatoon, a journalist but also a trustee and economic board member on his home reserve, the Little PIne First Nation notes: He was the Father of Confederation, the architect of Canada, the guy who pushed for the treaties our forefathers signed and, oh yes, he also hung Louis Riel, starved our people onto reserves and pushed for the railway that changed the West forever.  

Macdonald also began the infamous residential school system. While most authorities gave up on civilizing aboriginal adults, they thought that if brought up properly in residential schools away from their parents and the influence of the wigwam, aboriginal children could be molded into civilized persons who would fit well into the dominant culture. The Davin report which was the basis for the residential system can be found here. The purpose of the system was to take the Indian out of the child. This was to be accomplished by taking children away from their parents and put in schools run by churches. The program is described here. Many children were subject to abuse. Often conditions in many cases were so unhealthy that students literally did not survive: In 1909, Dr. Peter Bryce, general medical superintendent for the Department of Indian Affairs (DIA), reported to the department that between 1894 and 1908, mortality rates at some residential schools in Western Canada ranged from 30% to 60% over five years (that is, five years after entry, 30% to 60% of students had died, or 6–12% per annum). These statistics did not become public until 1922, when Bryce, who was no longer working for the government, published The Story of a National Crime: Being a Record of the Health Conditions of the Indians of Canada from 1904 to 1921. In particular, he alleged that the high mortality rates could have been avoided if healthy children had not been exposed to children with tuberculosis. 

Macdonald also express racist opinions about Chinese immigrants. In 1887 after the first of many anti-Chinese riots in Vancouver, Macdonald rose in the House of Commons to propose measures to keep out the Chinese: The Chinese took white jobs, he said. The Chinese would breed a “mongrel” race in British Columbia and threaten the “Aryan” character of the Dominion. Altogether, the prospect of having white working classes living alongside Chinese could lead only to “evil.” In an aside Macdonald said that he was was supporting the policy mainly because most Canadians wanted things that way. In 1867 blacks were banned from Toronto hotels and many in British Columbia saw Asians as a threat to "racial purity." 

 Defenders of Macdonald point out that his views on racial issues were in line with those of his constituents. Richard Gwyn, who wrote a biography on Macdonald, claims that Macdonald is being used as a scapegoat noting that Canadians collectively made "mistakes" as well as Macdonald. Translated I presume he means that not only Macdonald but the majority of Canadians took the same racist views of the Chinese and aboriginals. Sir Wilfrid Laurier, the Liberal successor to Macdonald, boosted the Chinese head tax to $500 in 1903. Laurier also said that it was fine to take land from "savage nations" as long as there was adequate compensation and that a Canada ruled by natives would "forever have remained barren and unproductive, but which under civilised rule would afford homes and happiness to teeming millions." While the consequences may have been as he claims we will never know what the situation would have been under native rule since Canadian authorities made sure that the natives never had the chance to rule. In spite of his racism with respect to aboriginals, Macdonald's views were in some respects "progressive" in relation to aboriginal rights. For example, he considered that aboriginals did have some rights to their land that had to be extinguished through treaties. Many politicians thought aboriginal land was free for the taking since they never had title. 

Macdonald was also typical of many politicians in that he was closely connected with business interests and in Canada at the time often railroad interests. He was accused of taking bribes in the Pacific Scandal as private interests tried to influence the awarding of a nation rail contract: The Montreal capitalist Sir Hugh Allan, with his syndicate Canada Pacific Railway Company, sought the potentially lucrative charter for the project. The problem lay in that Allan and Sir John A. Macdonald highly, and secretly, were in cahoots with American financiers such as George W. McMullen and Jay Cooke, men who were deeply interested in the rival American undertaking, the Northern Pacific Railroad. 

 Macdonald was also notorious for his drinking binges.In colonial politics however drinking was part of the political scene: Colonial politics, in particular, centred around drinking. Political meetings were held in saloons, political parties used them as their headquarters and during elections they often doubled as voting places. Macdonald's behavior often tested the patience of his friends and allies. He could become belligerent when drunk at dinner parties. He would suddenly disappear for days as he went on binges. He would show up for parliament barely able to talk. The appended video gives an appropriately sanitized history of Macdonald's career although it does mention the Pacitic Scandal and his drinking. There is no hint of his racist poliicies.

Alberta Premier Prentice praises Nebraska court decision on Keystone XL

The premier of Alberta said that the Nebraska Supreme Court ruling which vacated a district court judgment that a law determining how the route would be determined was unconstitutional, helped move the approval process forward.

The premier, Jim Prentice, said that the political process of approving the project is still far from over: “I think it remains to be seen how this plays out in the United States. From my perspective, the project should be approved. It will create jobs, it’s an environmentally defensible project, it’s supported by the American people. I think my role as the premier of Alberta is to be in Washington to ensure that the facts are clear, to speak to the environmental record of Alberta as a jurisdiction." Prentice intends to go to Washington in February to lobby in favor of approval for the project.

 During the period when the Nebraska Supreme Court was considering the lawsuit case brought by Nebraska landowners the US State Department review of the pipeline project had been paused. The review will now continue. When the review is finished and a recommendation made to Obama, he will make the final decision as to whether the pipeline will be built. In the new Congress, Republicans control both the House and the Senate. The Republicans have already passed legislation through the House that approves construction of Keystone XL. Obama threatens to veto any bill passed that favors the project. Keystone XL is part of a larger project that will deliver oil from the Alberta Tar Sands and other areas as far as refineries on the Gulf Coast in Texas.

 The CEO of Trans-Canada, the company building the project, Russ Girling, expressed pleasure at the Nebraska decision: "It removes what we believe is the stated reason for the delay in the presidential approval process. Now, hopefully that process can pick up where it left off. We would hope that we can get on with an approval in a very short timeframe." While some have said that lower oil prices make the project less attractive or even needed, Girling took the opposite position claiming that the low prices made it more necessary to find a more efficient and cheaper alternative to rail transportation as the pipeline would be. More pressure will be put on Obama to ensure the review is completed quickly and a decision made. Republican House Speaker, John Boehner, said it was time to start building: "President Obama is now out of excuses for blocking the Keystone pipeline and the thousands of American jobs it would create." 

While Prentice and Trans-Canada executives praised the Nebraska ruling, Randy Thompson who was lead plaintiff in the case in the lower court expressed disappointment at the ruling. The ruling was close with four of seven judges agreeing with the lower court that the law in question was unconstitutional. A super-majority majority was needed to support the lower court ruling. Thompson said: "This has been tremendously upsetting for landowners in this process and the fact that political leaders have just tried to kick our butts along with TransCanada has been tremendously disappointing. It's time for the president to put an end to this damn thing, let us get back to our lives, get back to raising food for America." 

 Some political observers think that Obama might be open to a deal on the Keystone including Ryan Lizza writing in the New Yorker. He speculates that the Republicans who control both houses might be willing to trade something that Obama wants in return for his not vetoing approval of Keystone. Obama could request a carbon tax or a large infrastructure project, or alternative measures to help the environment or advance alternative energy production. Lizza claims: From the White House’s perspective, the Keystone XL pipeline should be an ideal policy to give away in a trade: it’s a major issue that Republicans care a great deal about but one that Obama seems to view as a sideshow. A Senate bill to approve the Keystone XL passed a key Senate committee, on Thursday. The Energy and Natural Resources Committee approved the bill by a vote of 13 to 9.

Manitoba Premier, Greg Selinger, to run again for NDP provincial leader

The beleaguered premier of Manitoba, Greg Selinger, is running to retain his leadership of the Manitoba New Democratic Party(NDP) at a convention to be held on March 8.

Selinger faced a recent revolt by five cabinet ministers who criticized Selinger and suggested he step down as premier. The five ended up resigning but continue as NDP members and will support government legislation.Two of the ministers have filed papers to run for the leadership. Selinger filed his nomination papers at the NDP provincial office in Winnipeg. At the same time he defended his decision to raise the provincial sales tax to 8 per cent from 7. The decision was very unpopular since during the election campaign he had promised not to raise the tax.

 Selinger will continue to be premier during the leadership race and said: “I plan to make my first responsibility governing is for the people of Manitoba. There is a leadership contest going on. That will be the second priority in the sense that your first duty is to serve the people of Manitoba.” 

Theresa Oswald, formerly Minister for Jobs and the Economy, was first to enter the leadership fray on December 19th followed by former Transportation Minister Steve Ashton. Ashton has promised to promote local food and social enterprises in a speech made at Local Meats and Frozen Treats, a company selling made-in-Manitoba products. Ashton also called for a referendum on the increase in the sales tax, an obvious challenge to Selinger.

 Oswald has the endorsement of two Winnipeg city councillors. On the campaign trail Oswald said: "Premier Selinger has served this province with dedication for many years and it's been an honour to work together on important programs for Manitobans, including free cancer drugs for all patients, expanding home care for seniors and introducing the Rent Assist housing benefit for low income families.I look forward to a respectful, constructive and honest debate about who is the right man or woman to renew our party, regain the confidence and trust of Manitobans and ensure the NDP is competitive going into the next election."  

Selinger has the dubious distinction of being Canada's least popular premier with an approval rating of just 17 per cent. Next door in Saskatchewan Brad Wall of the conservative-leaning Saskatchewan Party is the most popular at a 65 per cent rating. Political scientist, Alan Mills, of the University of Winnipeg said that the NDP will lose the next election unless they dump Selinger: "I think with him as the leader, the NDP is a dead duck." 

 While the next election could be more than a year away, the NDP has a large gap to bridge between its support and that for the Conservatives. A recent poll in December puts their support at just 26 percent of decided voters. This is tied with the lowest level for the party ever recorded by Probe Research in December of 2013 just a year ago. The Progressive Conservatives(PC) have improved from 42 percent in September to 48 percent now giving them a comfortable 12 percent lead over the NDP, although the PC vote is much stronger in rural areas than in the city of Winnipeg. The Liberal Party has the support of 19 percent of voters a drop of one percent since September.