Everything You Need to Know on Friday: BMO Says Canada Might Face a Currency Test

Good morning mooers! Here are things you need to know about today's market:

● S&P/TSX 60 Index Standard Futures are trading at 1,506.10, down 0.10% from previous close

● RBC comments on Bank of Canada's next rate moves, Canada rates

● Canadian Dollar hits four-year low as BMO highlights concerns over Bank of Canada's indifference

● AtkinsRéalis Group Inc. highlights nuclear business growth and strategic contracts amid record backlog

Today, the Canadian dollar is trading at 71.16 US cents, an increase from the previous close.

RBC maintains its prediction for the Bank of Canada, anticipating a 50 basis point rate cut in December as the most straightforward course unless incoming data is unexpectedly strong. This would be followed by consistent 25 basis point reductions down to a terminal rate of 2%.

The bank noted that the recent rise in front-end yields is entirely attributable to a re-assessment of the United States Federal Reserve's position and is not connected to domestic economic fundamentals.

RBC anticipates a self-sustaining cycle of macroeconomic factors and policy decisions leading to lower bond yields, steeper yield curves, and continued outperformance of Government of Canada bonds compared to U.S. Treasuries. While markets may not follow a direct path, the bank believes these macroeconomic forces are potent and suggests that any moves against this trend should be short-lived.

However, RBC has modestly increased its yield forecasts, adjusting them upwards in response to revised expectations for U.S. Treasury yields.

The Canadian dollar (CAD or loonie) has plummeted past the $1.40/USD mark (71.4 cents), reaching a four-year low, and appears to be on a continuous decline, according to the Bank of Montreal (BMO).

BMO noted that significant rate differentials between Canada and the United States, including a record -115 basis points spread in the 10-year sector, are exacerbating the loonie's weakness against a strengthening US dollar (USD).

Despite these developments, the Bank of Canada seems largely unconcerned. In recent remarks, Governor Tiff Macklem indicated that the depreciating currency does not currently influence the central bank's monetary policy decisions.

BMO disagrees with this indifferent policy approach, which might stem from the belief that the currency's impact on inflation is minimal. Although the loonie does not influence inflation as strongly as it did in past decades, BMO highlighted a significant correlation between fluctuations in the currency and Canada's inflation rate relative to the US. Specifically, a 10% increase in the USD cost could raise Canadian inflation by approximately 1 percentage point.

With the Bank of Canada showing little concern and the USD continuing to rise, Canada might soon face a test of this inflation-currency relationship.

Governor Macklem may not be focusing on the Canadian dollar, but according to BMO, the loonie is definitely reacting to his policies.

AtkinsRéalis Group Inc. emphasized its nuclear business as a crucial part of its growth strategy, reporting a record-high services backlog of $16.84 billion as of September 30, a 34.7% increase from the previous year. The nuclear segment alone saw its order book reach a record $3.2 billion, with revenues up 36.4% year-over-year to $368.9 million.

The company's shares rose 15.7% to close at $74.24. During the quarter, subsidiary Candu Energy secured a life extension contract for two reactors in China and continued negotiations for new builds in Romania. CEO Ian Edwards highlighted the global demand for their nuclear expertise and the company's unique position to service the entire lifecycle of nuclear assets.

Atkins was also awarded a $2.3 billion contract to operate facilities at the U.S. Department of Energy’s Paducah and Portsmouth Gaseous Diffusion Plants. Despite a slight dip in third-quarter profit to $103.7 million from $105.0 million the previous year, revenue rose to $2.45 billion from $2.20 billion. The company faced a reduced backlog in lump-sum turnkey projects, down to $190.1 million from $305.2 million, reflecting challenges in major rail projects in Canada.

Edwards noted ongoing efforts to recover claims and finalize projects, affirming the company's commitment to addressing challenges and capitalizing on opportunities in the nuclear sector.