Canadian Dollar’s Softness Presents Opportunity

By David Dittman • March 12, 2013 • Canadian Edge Weekly

Statistics Canada reported last that employment in the Great White North rose by 50,700 in February, reversing course after a decline in January of 21,900. New jobs were spread between full- and part-time work.

The number of jobs added beat the median of 22 estimates compiled by Bloomberg News Service, 8,000, by more than six times. The actual figure was more than double even the high forecast of 25,000 new jobs.

Canada’s unemployment rate remained at 7 percent, as more people participated in the labor force.

Canada has added 336,000 jobs over the past year, employment growing by 1.9 percent, predominantly in full-time work. Over the same period the total number of hours worked also increased by 1.9 percent.

Ontario (35,000), British Columbia (20,000), Nova Scotia (3,000) and New Brunswick (2,900) posted job gains, while employment in Manitoba decreased by 3,200. Quebec was little changed.

Employment in resource-rich Saskatchewan was little changed in February, though growth of 4.3 percent over the past 12 months has pushed the provincial unemployment rate down 1.1 percentage points to 3.8 percent, the lowest since November 2008 and the lowest among Canada’s provinces.

In Alberta 4,200 new jobs were created in February, while 52,900 new jobs were added over the trailing 12 months, a 2.5 percent increase. Unemployment in the province remained steady at 4.5 percent, second only to Saskatchewan among Canadian provinces, as more people entered the work force.

Alberta’s gains were concentrated in professional services, trade, finance, insurance and real estate, while jobs were shed in public administration, manufacturing and oil and gas extraction.

Despite the increase in provincial jobs Ontario’s unemployment rate remained 7.7 percent. A year-over-year gain of 1.7 percent trailed the national average of 1.9 percent. Unemployment remains highest in Canada’s eastern provinces, with New Brunswick (10.1 percent), Nova Scotia (9.3 percent) and Quebec (7.4 percent) posting the highest rates of joblessness.

Employment in services rose by 59,300 in February, while jobs related to goods production fell by 8,600. Professional, scientific and technical service jobs rose by 26,200, as retail and wholesale employment increased by 13,200 and food service and accommodation by 21,100. Private companies hired 29,200 workers in February, exceeding the 9,400 increase in public-sector jobs.

StatsCan reported March 7 that the country had the smallest merchandise trade deficit in almost a year in January on higher exports of crude oil and bitumen.

The US Dept of Labor had more good news on the North American employment front last week, as Canada’s southern neighbor and largest trading partner added 236,000 jobs in February.

The US unemployment rate declined to 7.7 percent from 7.9 percent and is at its lowest level since December 2008.

Job gains were the highest since November 2012 and were broad based, led by professional services (73,000), construction (48,000), health care (32,000) and retail (24,000). The median estimate among 90 analysts polled by Bloomberg was an increase of 165,000 jobs. The median unemployment rate estimate, based on 85 forecasts, was for it to remain unchanged at 7.9 percent.

Employment gains for January were revised lower, but December hiring was revised up, resulting in little change overall. The number of new jobs created in January was revised to 119,000 from 157,000, while December’s figure was revised up to 219,000 from 196,000.

The US economy has added an average of 191,000 jobs over the past three months.

In February the average workweek rose 0.1 hour to 34.5, while average hourly earnings climbed by USD0.04, or 0.2 percent, to USD23.82. Hourly wages have risen 2.1 percent over the past 12 months. All the hiring in February took place in the private sector. Business added 246,000 jobs, while government positions were cut by 10,000.

The Canadian dollar spiked upon release of the StatsCan employment data to an intraday high of USD0.9771 but settled back to USD0.9724 later Friday. It’s up slightly this week, to USD0.9746 nearing the close of trading in North America on Tuesday afternoon.

The loonie has traded below parity with the buck for the past month, its longest stretch below USD1 since the early May to early August period of 2012.

There’s also more encouraging news from the Middle Kingdom, as China’s exports surged 21.8 percent in February, well ahead of analysts’ expectations of single-digit growth as companies shut down for the Lunar New Year holiday.

Imports fell 15.2 percent, a decline from January’s 28 percent growth, which suggested domestic demand might be weakening. But the February data is clouded by the holiday, when companies shut down for up to two weeks.

Outgoing Premier Wen Jiabao said earlier this week in remarks prepared for China’s annual parliament meeting that the country would do what was necessary to achieve its target of 7.5 percent growth this year.

The Bank of Canada (BoC) held its benchmark interest rate steady at 1 percent this week, noting that it will likely remain unchanged for some time but hinting again that the next move will be “higher.”

But BoC Governor Mark Carney, who will depart June 1, 2013, in preparation to assume the leadership of the Bank of England on July 1, at the same time maintained the softer tone he adopted in January’s statement on monetary policy, saying inflation will “remain low in the near term” in an economy with “material excess capacity.”

Mr. Carney and company concluded, “The considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required.”

In January the BoC noted that a rate increase was “less imminent.” But Mr. Carney has signaled since April 2012 that the central bank’s next move would probably be to tighten policy.

At any rate, the longest period with no change to it benchmark in more than half a century will continue.

The BoC forecast in January that the Canadian economy will grow by 2 percent in 2013. In its statement this week it said it expects growth “to pick up through 2013,” led by household spending, exports and investment.

The Canadian dollar has softened to its lowest levels since late June 2012 on a combination of myriad factors, likely including the potential impact of the US “sequester” on North American trade and continuing high price differentials between Canadian crude and US crude as well as the BoC’s softer monetary stance in recent statements.

There are also probably technical factors at work that could pull the loonie even lower.

But based on longer-term factors, such as the fiscal health of the Canadian federal government, the position of Canada relative to resource-hungry emerging Asian nations and its everlasting relationship with what remains the world’s largest economy–one that continues to show signs of returning to a more normal economic condition and with which it forms the biggest bilateral trade relationship on the planet–this softness in the loonie represents a buying opportunity.

And going long dividend-paying Canadian equities is a great way to enjoy the rebound in multiple ways, through the impact of an appreciating currency on regular payouts as well as for the effect on capital-appreciation.

The Roundup

Here’s where to find analysis of Canadian Edge Portfolio Holdings’ fourth-quarter and full-year 2012 earnings. Reporting dates for companies yet to post numbers are also provided.

Conservative Holdings

Aggressive Holdings

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