Financial Update For Oct. 14, 2009

Eyes turn to Bank of Canada as dollar continues to soar toward parity
Gold hits another all time high

• TSX -23.38 to 11,413(Reuters) as strength in commodity prices was not enough to offset a drop in banking shares
• DOW -14.74 Concern about a heavy slate of upcoming U.S. earnings reports also persuaded some investors to pocket profits.
• Dollar +.73c to 96.48.
• Oil +.88 to $74.15US per barrel. Hits another 2009 high
• Gold +$7.50 to $1,064.20USD per ounce hitting another all time high

• http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise.

Eyes turn to Bank of Canada as dollar continues to soar toward parity
Canadian Press OTTAWA - The recent surge in the loonie could damage the pace of Canada's recovery, Prime Minister Stephen Harper warned Tuesday as pressure built on the Bank of Canada to intervene.
The Canadian dollar has risen more than five cents in the past two weeks, much of it in the last few days of trading.
It closed up 0.73 cents at 96.48 cents U.S. Tuesday from the central bank's posted rate Friday, although it had been above 97 cents for much of the day and was higher in overseas markets Monday when Canadian markets were closed for Thanksgiving.
Speaking in Vancouver, Harper said he was concerned, especially with the quick pace of the appreciation.
"As we said before, we're not out of the woods. There are many risks ... and obviously the value of the Canadian dollar is a risk to recovery," he said.
"I don't think it's a risk to choking off the recovery but if it goes up too rapidly it does have difficult effects on our economy."
The prime minister went on to say the currency is the responsibility of the Bank of Canada, but did not say what he believes governor Mark Carney should do, if anything.
Carney has taken to trying to jawbone the dollar down since it began its steady ascent from 76.53 cents on March 9 with little to show for it.
Avrim Lazar of the Forest Products Association of Canada said the time has come for Carney to match his words with action.
"This is not a penny mining stock we're talking about. It's our currency, the foundation of our economic growth," he said.
"I'm not going to tell Mark Carney how to do his business, but we're saying if you want to keep jobs in this country and you want to avoid destroying the recovery, he has to use the tools at his disposal."
The simplest way for the bank to intervene is to print Canadian dollars and use them to purchase the U.S. currency - in essence devaluing the loonie while increasing demand for the greenback.
Many economists have been forecasting the loonie would hit parity with the U.S. greenback in the middle of next year.
"It could happen middle of next week," said Derek Holt, vice-president of economics with Scotia Capital.
That is good news for consumers in Canada, who may see the prices of imported goods fall in what economists call a "back-door pay hike," and for vacationers or retirees who spend their winter months in the warm states.
However, a strong loonie is regarded as a net negative for the economy with about 35 per cent of the country's gross domestic product is tied of exports and three-quarters of those are destined for the U.S.
The Canadian Manufacturers and Exporters estimates a one per cent appreciation in the value of the loonie - roughly equivalent to one cent at current levels - reduces sales by about $2 billion, equating to about 25,000 jobs.
The bank's next opportunity to chime in on the dollar comes next week at its pre-scheduled policy rate announcement. Few Carney will intervene.
The problem is that Canada's currency is not the only one on the move. Since March 9, other so-called commodity plays have performed just as well, or as in the case of Australia, far better. The Aussie buck has risen about 43 per cent against the U.S. currency, to Canada's 26-per-cent appreciation.
"This is a freight train. There's only so much the Bank of Canada can do," said Douglas Porter, deputy chief economist with BMO Capital Markets.
Analysts say a number of factors are at play, including the fact that money seeking a safe haven in the world's most liquid currency during the crisis this past winter is moving elsewhere now that global growth appears to be resuming.
And the fundamentals favour Canada. Growth in China and other Asian countries is again leading to an increase in demand for commodities that Canada exports. As well, Canada is not as saddled with debt as the United States.
"Sentiment has turned very quickly, very negatively against the U.S. dollar. The market is very focused on the U.S. deficit and the plans for funding it... and the market is concerned about the general outlook for the U.S.," said Camilla Sutton, a currency analyst for Scotiabank.
In the past week, the loonie got additional turbo boosts from the surprisingly strong jobs gain reported on Friday - a net gain of 31,000 jobs - and the Australian central bank's decision to raise rates, leading to speculation the Bank of Canada would be among the next to move.
The loonie's strength, however, makes that even more improbable, noted Porter, since raising rates before the U.S. Federal Reserve does will only add more fuel to the loonie's boosters.