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Breaking News from The Globe and Mail

ALLAN ROBINSON

Friday, March 03, 2006

The Bank of Canada has telegraphed that it will likely increase the target overnight bank rate Tuesday, but with the loonie climbing to a new 14-year high, that hike could be it for while.

If the bank continues to raise rates, the currency could go higher and that would put even more strain on domestic manufacturers looking to increase their exports. The strength in the loonie makes it a lot tougher to decide whether the Bank of Canada will continue to increase the target overnight bank rate.

At the same time, the currency's strength helps to do some of the work of the central bank by reducing inflationary pressures because it makes the price of imports for everything from food for consumers to equipment for businesses a little cheaper.

"Pundits are sticking to their call, en masse, that the Bank of Canada will continue to hike rates next week, despite the torrid currency," said Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc. The majority of economists are also looking for another increase on April 25.

"We are officially in that camp, but would openly allow that it is no longer an open-and-shut case with the currency on a rampage." Mr. Porter said.

The consensus among economists is that Canada's target overnight bank rate will be increased Tuesday for the fifth consecutive time by one-quarter of a percentage point to 3.75 per cent.

In addition to the Bank of Canada's rate decision, other key domestic data scheduled for release this week include the merchandise trade balance on Thursday and the February employment report on Friday.

The trade surplus for January could moderate somewhat as a result of the strength in the dollar and the plunge in natural gas prices said Stewart Hall, a market strategist for HSBC Securities (Canada) Inc. The surplus has been huge as a result of high oil and base metal prices and rising forestry product prices.

The key U.S. data scheduled for release this week include factory orders and home sales Monday, the trade balance on Thursday and the employment report on Friday.

In corporate news, Goldcorp Inc., Alimentation Couche-Tard Inc., Imax Corp., and Four Seasons Hotels Inc. are among the companies slated to release earnings.

MONDAY, MARCH 6

Economy

Earnings

TUESDAY, MARCH 7

Economy

Earnings

WEDNESDAY, MARCH 8

Economy

Earnings

Other

THURSDAY, MARCH 9

Economy

Earnings

Other

FRIDAY, MARCH 10

Economy

Earnings

All earnings forecasts are mean estimates of analysts polled by Thomson First Call.

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