Yahoo Finance Weak loonie? These TSX stocks could gain strength, says RBC
The loonie saw its biggest monthly decline against the U.S. dollar since October last month. The currencies (CADUSD=X) could drift further apart, say analysts, if Canada’s central bank widens its policy rate gap with the Federal Reserve.
Earlier this week, RBC Capital Markets issued a list of Canadian stocks that could benefit under a strong greenback and weak loonie, as well as some that could take a hit.
Canada’s economy grew 0.2 per cent in April, below the pace forecast by Statistics Canada and other economists. Wednesday’s sluggish GDP reading ups the pressure on the Bank of Canada to ease borrowing costs. Meanwhile, Fed officials signalled on Wednesday intentions to hold rates steady to further tame inflation.
“The underperformance of the Canadian economy relative to the U.S. increases the odds that a gap in policy rate and a weaker CAD are more likely to be tolerated by the Bank of Canada,” RBC’s global equity team wrote earlier this week, prior to the Fed’s latest decision.
“RBC expects the Bank of Canada to cut rates before the Fed, and at a more aggressive pace afterwards,” they added.
The bank says Canadian stocks that tend to generate more earnings from the U.S., benefiting from a stronger USD versus CAD, span the technology, media, financial, healthcare, industrial, and forest product sectors. It also notes all of Canada’s oil and natural gas producers sell commodities benchmarked in U.S. dollars, while using Canadian currency to cover production costs.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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