Financial life in a big town

Global steel prices could hit new peaks in 2008, thanks to skyrocketing raw material, energy and freight costs, coupled with tighter supplies because of falling exports from China.

A looming recession in the United States poses a risk for demand, but many believe requirements from the developing world and China will help support prices.

And, after several years of working to develop financial futures for steel, the London Metal Exchange’s billet contracts are hitting the ground as global steel prices eye new peaks.

“In our view steel prices will remain high because underlying raw material costs continue to rise,” JP Morgan analyst Jeff Largey said.

Japanese and South Korean mills and Brazilian mining giant Vale (VALE5.SA: Quote, Profile, Research) agreed a 65 percent jump in the price of iron ore, the major ingredient in steel making, in annual contract talks. Spot prices are rising too, partly due to shipping tightness.

Coking coal prices have surged on the back of tighter supplies after severe flooding in Australia chopped off some 25 percent of total seaborne supply for up to six months.

In Europe, the price of rebar, produced with steel billets, jumped to 570 euros ($840.1) per ton in February from 440 euros in December. The price of hot-rolled coil (HRC), a semi-finished product in carbon flat steel, has risen over 500 euros in from around 480 euros in the same period.

Several banks have upgraded their steel price forecast recently to reflect the rising cost of steelmaking. Citibank expects hot-rolled coil (HRC) prices for 2008 to be at $700 per ton, up 12.9 percent from a previous forecast. 

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Top 10 business paperback books

1. FairTax: The Truth: Answering the Critics, by Neal Boortz and John Linder

2.  Zero to One Million: How I Built My Company to $1 Million in Sales … and How You Can, Too, by Ryan P. Allis

3. The SPEED of Trust: The One Thing That Changes Everything, by Stephen M.R. Covey
4. Getting Things Done: The Art of Stress-Free Productivity, by David Allen

5. The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It, by Michael E. Gerber

6. Good to Great and the Social Sectors: A Monograph to Accompany Good to Great, by Jim Collins

7. The Tipping Point: How Little Things Can Make a Big Difference, by Malcolm Gladwell

8. Blink: The Power of Thinking Without Thinking, by Malcolm Gladwell

9. The Goal, by Eliyahu M. Goldratt

10. Getting to Yes: Negotiating Agreement Without Giving In, by Roger Fisher

Based on orders last week at Amazon.com

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Steel yourself to watch those digits on the gasoline pump tick over at high speed – once again a host of factors global and local are conspiring to push national prices well over the loonie-a-litre mark.

The cost of a barrel of oil on the international market closed above US$100 on Tuesday, the most visible driver of this rise at the pumps. On top of that, a U.S. refinery shutdown and global tensions surrounding some oil producing countries are also having an effect.

Drivers heading out midday Wednesday saw a litre of unleaded gas cost about $1.10 in Toronto and London, Ont., $1.15 in St. John's, NL, $1.13 in Vancouver and as high as $1.20 in Montreal.

All were above the national average price of $108.8 a litre last week, according to Calgary-based pump watcher MJ Ervin's weekly Tuesday to Tuesday survey.

Many gas buyers filling up Wednesday said they expect prices to keep bouncing around.

Ghazi Aasim, fuelling his car at a Montreal gas bar, said he was only filling his tank halfway in case prices drop.

"You have to take a gamble every time you go to the gas pump… it's just a game," Aasim said.

"We're between $1.08 and $1.16 but now it's gone up to $1.20, so I guess if it continues like this for a couple of months it's going to hurt my pockets."

In the Atlantic provinces, where gas price regulation boards operate, the immediate effect was less severe. Nova Scotia saw prices between about $1.11 and $1.15 across the province, little changed from Tuesday, according to price monitoring website Gasbuddy.com.

Ahmad Abdoulla, a Halifax cab driver, paid $1.11 a litre for regular self-serve while filling up at a local gas station.

"I need the gas, this is what I do for a living," said Abdoulla. "I just come to the gas pump, and pump what gas I want and then leave. There's no point at looking at the prices. It doesn't make sense to me anyway."

A.J. MacEachern of Terrence Bay, N.S., said he doesn't expect gas prices to drop below $1 a litre again.

"It seems more of an upward trend than anything else," said MacEachern, 30, standing next to his sport utility vehicle.

"I just gotta get around, gotta get gas. They gotcha, right? And there's nothing you can do about it."

Prices around St. John's were also about the same, around $1.14 – the lowest in Newfoundland and Labrador.

The maximum price in New Brunswick was $1.07 and in Prince Edward Island, prices ranged from $1.04 to $1.06.

Prices in Calgary, which had spent most of the prior week around the loonie mark, increased to around $1.02.

"It's going to be a disincentive for people to take vacations and may actually impact the travel industry in Canada as well just because people are going to be doing less travelling," Gasbuddy.com co-founder Jason Toews said in an interview.

Toews said he expects prices could go as high as $1.50 per litre in the spring.

Some people suspect the big oil companies are in cahoots with one another when it comes to fixing gas prices, but Toews said thinks the spike has more to do with fierce competition between retailers.

"It's actually very hard to prove collusion is going on. What generally happens is one brand will raise their price and other stations or their competition will follow suit," he said.

Independent gas station owners can set their own prices. But with corporate-owned chains, regional managers will scope out the competition and then direct individual station owners how much to charge, Toews said.

"Right now the retail gas stations aren't making that much money because people are so price sensitive on gasoline. But at the wholesale level they're making lots of money. The oil companies are having record profits," he said.

Many have called for the federal government to slap controls on gas prices, but Finance Minister Jim Flaherty said that's not something his government is prepared to do.

"Canada is a net exporter of oil, so we're in a relatively unique position in the world, so that it has an effect that's positive in terms of one part of the economy, and then of course it has some effects, since it's a market commodity, on prices in Canada," Flaherty said after a business to a small business group in Toronto.

"But again this is a market commodity and the market will determine the price. It's not something for governments to determine."

Oil prices retreated a bit on Wednesday as traders expressed doubt it can sustain a $100 per barrel price tag, which could be a limiting factor on how high gas prices eventually go.

The contract for March delivery of light sweet crude, which expires later Wednesday, fell $1.10 to US$98.91 on the New York Mercantile Exchange.

Vince Lauerman, a global energy analyst with Geopolitics Central, said for each dollar increase in the price of oil per barrel, gas prices tend to go up by a cent per litre.

"The main factor tends to be oil prices, but at the same time another extremely important factor is seasonal demand. Of course in summertime there's far more recreational driving going on, so demand bumps up substantially," he said, adding that for this time of year gas prices are actually relatively low.

A big factor in oil's rise above $100 Tuesday was the explosion Monday at Alon USA's Big Spring, Tex., refinery, which could be shuttered for two months.

"One thing about refineries is they tend to have accidents. It's that simple," Lauerman said. "When these units go off line that can lead to a spike of prices, too."

Troubles in the American economy that have hampered global growth suggest that demand for oil could drop as consumers feeling the pinch spend less on gas and other commodities and services that consume oil-related products.

"Even if there's a slowdown in demand, (the Organization of Petroleum Exporting Countries) will cut to keep prices relatively high, but at the same time we think that they're going to gradually soften over time," Lauerman said.

"We believe that the global economic slowdown that is just beginning is going to be much longer and deeper than most people expect and that it's ultimately going to try even OPEC's patience."

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BOSTON — State and federal regulators are trying to punish Wall Street for the subprime mortgage meltdown.

Observers don’t expect the financial penalties that regulators extract in the civil cases to be massive. But the cases could turn up evidence of bad behavior that could spur private investors to file even more lawsuits than the hundreds they’ve already brought to recover losses.

"This could get a lot nastier, for many reasons," said John Akula, a business law lecturer at the Massachusetts Institute of Technology’s Sloan School of Management. "Prolonged close scrutiny often turns up all kinds of dubious practices that in normal times are under the radar."

Some regulators say greed and fraud underlie much of the subprime mortgage mess that has spread across the broader housing market, triggering a spike in foreclosures.

Although the foreclosure-blighted cities of Cleveland and Baltimore have sued seeking to recover damages from mortgage lenders, most of the cases filed so far are from regulators alleging violations of state securities laws.

Attorneys general in New York and Ohio are targeting alleged systematic inflation of home appraisals by major lenders and appraisal firms. Litigation in Massachusetts and other states seeks to demonstrate that investment banks failed to disclose risks about mortgage-related securities to investors.

Until recently, cash from Wall Street banks and investors extended growing amounts of credit to low- and middle-income Americans enticed to enter a market when home prices appeared headed nowhere but up.

Lenders wrote $625 billion in subprime mortgages in 2005, nearly four times the total in 2001. The boom brought in big fees to mortgage brokers, lenders, banks and ratings agencies.

But now that prices are dropping, those players are hurting. Global banks have written off nearly $150 billion since mortgage securities began collapsing last summer.

Given the losses, "It’s doubtful some of these entities will repeat their performance," said Massachusetts Secretary of State William Galvin. "But I think there needs to be an understanding of how we got where we are, whether that is through regulatory action, or through Congress."

States have responded by tightening rules governing how lenders and brokers arrange mortgages and are compensated. But lawsuits and administrative complaints are the main tools regulators use to seek fines against companies accused of wrongdoing, or to set examples to deter bad behavior.

Already, the 278 subprime-related cases filed in 2007 in federal courts is outpacing the rate of litigation that emerged from the savings and loan meltdown in the late 1980s and early ’90s, according to a study released Thursday.

"What they can’t enforce through regulation, they will try to accomplish through suing," said David Bizar, a Hartford, Conn.-based attorney with the firm McCarter & English who defends against subprime mortgage lawsuits brought by consumers and regulators.

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In her book, The New Retirement, economist Sherry Cooper delivers bad news to affluent boomers who expect to live well after they leave work.

Her message: You haven’t saved enough. You have to save a lot more.

"Roughly 41 per cent of Canadian households earning $75,000 a year or more might not be able to replace two-thirds of earnings," she says.

"And a whopping 55 per cent of Canadian high-income households have not saved enough to replace 80 per cent of their employment income."

She’s talking about the fact that government pensions (Canada Pension Plan and Old Age Security) were never intended to maintain your living standards after retirement.

The richer you are, the more you will need to rely on employment pensions or your own savings.

But not all pension plans are the same. The traditional defined benefit (DB) plan, which covers 33 per cent of Canadian workers, is more valuable.

With a DB plan with inflation protection and long service with your employer, you have no reason to worry.

But if you have a defined contribution plan, watch out. You’re unlikely to achieve the same level of financial health in your retirement as a DB plan member.

She gives the example of two people, Dick and Jane, starting their careers at age 25 and planning to retire at 65.

Their starting salaries are $40,000 a year, increasing at a rate of 2.5 per cent a year, and their average annual income over their last five working years is $102,290.

Dick is employed by a bank and covered by a DB plan. He contributes 2 per cent of his salary each year and gets an annual retirement benefit of $51,145.

According to financial planners, it would take 20 times the annual payment – or $1.02 million – to generate an annual income of $51,145 for an indefinite period into the future.

Jane works for an investment bank and has a DC plan. She puts 2 per cent of her income, as Dick does, into a registered retirement account to get a 2 per cent matching contribution made by her employer.

For her workplace savings to reach the same imputed value of $1.02 million, Jane would have to get an average annual return of 10 per cent during her working years.

"This is not likely," says Cooper, who’s chief economist at BMO Capital Markets.

Assuming a more realistic 5 per cent return, Jane would have to contribute much more each year to bring her DC plan up to $1.02 million at retirement.

In fact, she has to save an extra 9.8 per cent of her income – on top of the 2 per cent contribution she already makes – to get the matching contributions from her company.

"This, too, is very difficult," says Cooper.

"Saving 11.8 per cent of gross income is quite a hefty chunk. Whichever way you look at it, the DB plan is very valuable, far more so than the DC plan."

The prospect of coming up short is even more acute if you go into retirement without having paid off your mortgage.

Owning your own home makes a big difference, since it’s assumed that one-half of the home equity is an asset from which you can generate retirement income.

Cooper’s book has hit a nerve (for a contrary view, see "An" below). She’s on the bestsellers’ list and she’s speaking across the country.

Her conclusion: If you’re a high-income earner without a good pension plan, you have to save more and invest wisely.

Investing wisely means holding 45 to 65 per cent of your portfolio in stocks – both before and during retirement.

This increases the chance of your money lasting as long as you do, which could be 30 years or longer.

Ellen Roseman’s column appears Wednesday, Saturday and Sunday. You can reach her by writing Business c/o Toronto Star, 1 Yonge St., Toronto M5E 1E6; by phone at 416-945-8687; by fax at 416-865-3630; or at eroseman@thestar.ca by email

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The Detroit area, hit hard by the double-whammy of unemployment and a slumping housing market, had the highest foreclosure rate in the nation last year, with several cities in California ranked close behind, an analysis of foreclosure activity in the nation’s largest 100 metropolitan areas shows.

Some 4.9 percent of the households in the Detroit metro area were in some stage of foreclosure last year — 4.8 times the national average, according to the study released Wednesday by mortgage research company RealtyTrac Inc.

St. Louis ranked 36th on the list, but its foreclosure rate of 1.28 percent was below the average of 1.38 percent for the 100 metro regions. The national average is 1.03 percent.

St. Louis had 19,084 total foreclosure filings on 15,444 properties last year.

Stockton, Calif., ranked second with about 4.8 percent of its households in some stage of foreclosure, while the Las Vegas metro area was third with a 4.2 percent rate.

RealtyTrac, based in Irvine, Calif., determines the ranking by comparing the number of households in a metro area with the number of foreclosure filings, which include notices of default, auction sale notices or bank repossessions.

Michigan has been in a long economic downturn and has led the nation in unemployment, a combination that has caused many homeowners to fall behind on mortgage payments.

In California, where house values more than tripled since 1995, plunging house prices and tighter lending standards chilled the market, leaving many financially strapped homeowners — some facing steep payment hikes from mortgage rate resets — with few options.

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SAN FRANCISCO – Yahoo Inc spurned Microsoft Corp.'s US$44.6 billion takeover bid as inadequate Monday, betting that it can elicit a higher offer from the world's largest software maker or find another way to deliver a comparable payoff to its shareholders.

The rebuff by the slumping Internet pioneer had been widely anticipated after word of Yahoo's intention was leaked during the weekend.

In its formal response, Yahoo said its board had concluded Microsoft's unsolicited offer "substantially undervalues" the Sunnyvale-based company.

Yahoo . (NASDAQ:YHOO) indicated it could be lured to the negotiating table if Microsoft (NASDAQ:MSFT) ups the ante, without mentioning the price it has in mind.

"The board of directors is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders," Yahoo said in a statement.

Investors appeared confident that Microsoft wants Yahoo badly enough to raise the stakes. Yahoo shares rose 34 cents to $29.54 in Monday's morning trading while Microsoft shares fell 46 cents to $28.10.

If Microsoft doesn't raise its offer, Yahoo chief executive Jerry Yang assured employees in a Monday e-mail that the company is poised to rebound on its own and become a "must buy" in the $45 billion online advertising market.

"We have accomplished a great deal in a very short time," wrote Yang, a company co-founder who promised things would get better after he became CEO eight months ago. "Yahoo is a faster-moving, better organized, more nimble company well on its way to transforming the experiences of its users, advertisers, publishers and developers."

Just two days before Microsoft made its bid, Yang had warned Yahoo faced "headwinds" that made it unlikely the company's performance would improve significantly until 2009.

Yahoo's stock price had dropped by more than 40 per cent in the three months leading to Microsoft's bid, valued at $31 per share when it was announced Feb. 1. The offer was 62 per cent above Yahoo's market value at the time.

Many analysts believe Redmond, Wash.-based Microsoft will eventually raise its bid to $35 to $40 per share, sweetening the pot by $5 billion to $12 billion in an effort to negotiate an amicable sale.

Microsoft was prepared to pay at least $40 per share for Yahoo a year ago, according to a person familiar with the talks between the two companies a year ago. Yahoo wasn't interested then because it was confident in its own strategy, said the person, who didn't want to be identified because Microsoft's 2007 offer was never publicly disclosed.

But a higher bid now could hurt Microsoft's own stock price, which has been slipping amid concerns that a Yahoo takeover could be more trouble than its worth. Microsoft's market value has plunged by more than $40 billion, or 14 per cent, since the bid was made public.

Microsoft representatives didn't immediately respond to requests for comment Monday morning.

RBC Capital Markets analyst Jordan Rohan predicted Yahoo's board will have little choice but to sell the company if Microsoft raises its bid to $35 or $36 per share. "Yahoo management has already exhausted the patience of its largest, longest-suffering shareholders," Rohan wrote in a Monday note.

If it doesn't want to pay more money, Microsoft could take its original bid directly to Yahoo's shareholders. Microsoft's management began preparing for that possibility last week by meeting with some of Yahoo's major shareholders to rally support for its offer.

In a more extreme tactic, Microsoft could try to override Yahoo's board by trying to oust the current directors later this year – a risky manoeuvre that would likely create hard feelings that would make it more difficult to cobble the two businesses together if a deal were consummated.

Yahoo also could fend off Microsoft by exercising an anti-takeover device, known as a "poison pill," that would issue more company shares to make a buyout too expensive to pull off.

Although its profits have been dwindling during the past two years, Yahoo still possesses one of the Internet's biggest audiences and most valuable franchises. Microsoft believes it can build on those assets to become a more formidable competitor to Google Inc., which now holds a commanding lead in the lucrative online search and advertising markets.

Yahoo has reportedly been exploring an advertising partnership with Google as one way to boost its profits and remain independent. The company also has been looking for other suitors that might be interested in countering Microsoft's bid, but so far no one has stepped forward.

By rejecting Microsoft's initial offer, Yahoo's board is running the risk that the company's stock will plunge below $20 per share again if its suitor decides to walk away.

That scenario would probably unleash a flood of shareholder lawsuits, intensifying the pressure on Yahoo's management team to deliver on a long-awaited turnaround that has been in the works for the past 18 months.

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DETROIT — When thousands of U.S. auto dealers gather in San Francisco this weekend, much of the talk will be about just getting through 2008.

The obstacles include a shaky economy, volatile stock market and tightening credit, setting up what economists are predicting could be the worst sales year in more than a decade.

With word Friday that Chrysler may have plans to thin its dealership ranks and the other two U.S.-based automakers looking to do the same, those left to sell another day may end up stronger — and car buyers may benefit as well.

"Fewer dealers means better prices for the customers," said Gerald Meyers, a former chairman of American Motors Corp. who now teaches leadership at the University of Michigan.
That’s because dealers not making money aren’t quick to offer discounts.

"If they’re profitable, they won’t lose the sale," Meyers said. "If they’re not profitable, they might lose the sale on the margin."

Automakers this year also could again offer zero percent loans through their finance arms and other incentives to help spur sales. But 2008 may be toughest for dealers who sell cars and trucks made by the Detroit Big Three, all of which saw sales declines last year and all of which are in the midst of restructuring.

About 10,000 dealers and their spouses will attend this year’s four-day National Automobile Dealers Association convention starting this weekend, and many of the programs will help them cope with 2008. Paul Taylor, chief economist for the association, has predicted annual new U.S. vehicle sales this year of 15.5 million to 15.8 million, down from 17 million as recently as 2005. Automakers sold 16.1 million vehicles in the U.S. last year, and that was considered lackluster.

Average dealer pretax profit, though, remained fairly strong through November, up 6.6 percent compared with the year-ago period, Taylor reported. The results came despite difficulties in the new car market, with dealers making much of their money on used cars, Taylor said.

But even that is starting to wane. The dealers association used car auction data is showing that prices are starting to drop, not just for larger vehicles but even small four-cylinder cars that get good gas mileage.

"For the last several months, we’ve seen prices falling. That’s a concern because it affects trading values on new cars as well," he said.

But other opportunities are emerging. On Friday, GM announced a deal with online auction site eBay Inc. that includes posting the entire GM Certified Used Vehicles on eBay Motors at no cost to its more than 3,900 certified used U.S. dealers. The companies also plan to work together to boost sales.

"GM Certified dealers will have millions more eyeballs looking at their inventory, and more traffic drives sales," Mark Mathews, director of GM Used Vehicle Activities, said in a statement.

Gasoline prices nationwide haven’t dropped much from the peak summer driving season, leaving customers uncertain about what will happen this summer, said Paul Gaudet Sr., owner of a six-dealer group in Tilton, N.H.

"People just don’t know what to buy, and as a result we don’t know what to stock. It’s tough," he said.

But there is cause for optimism. Top executives of GM and Ford have predicted a rebound in U.S. sales during the second half of the year as interest rate cuts and a possible federal economic stimulus package kick in.

"We think the pattern will be the reverse of ‘07, better as the year goes on, not weaker," said Mark LaNeve, GM’s vice president for North American sales and marketing. GM is expecting U.S. sales of about 16 million vehicles industrywide this year.

With lower interest rates, industry analysts have said auto company financing arms likely will offer zero percent loans and other incentives to help spur sales. But with tightening credit standards, dealers will need to forge better relationships with lenders, Taylor said.

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OTTAWA – Housing starts will fall by about seven per cent this year but will remain strong as 2008 should be the seventh straight year with starts above 200,000 units, Canada Mortgage and Housing Corp. predicted Monday.

The federal housing agency said it expects 211,700 housing starts this year, off from 228,343 in 2007.

"Despite some global financial instability with regards to the U.S. housing market, Canada continues to experience robust employment levels, ongoing income gains and low mortgage rates," Bob Dugan, chief economist for CMHC, said in a statement.

This has strongly supported Canada's housing markets, he said.

"However, housing starts are expected to decrease in 2008 mainly due to recent increases in house prices, which will push mortgage carrying costs higher for home buyers."

Existing home sales, as measured by the Multiple Listing Service, are expected to fall by 3.9 per cent to 499,650 units in 2008, while 2009 will see an additional decrease to 488,300.

Last year, such sales increased by 7.6 per cent over 2006 to about 520,000 units.

As most resale markets move toward more balanced conditions, growth in the average MLS price is forecast to slow to 5.2 per cent in 2008 and 3.8 per cent in 2009.

Last year, the growth in the average MLS price remained high at 10.6 per cent, mainly because of continued strong price pressures in Canada's western provinces.

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OTTAWA – More clouds over the U.S. financial industry and a report showing Canada's manufacturing and forestry output declined in November, combined to help push the loonie down by more than a cent today.

The loonie fell 1.06 cents US to close at 99.62 cents US in Toronto on Thursday, just a day after the Canadian currency closed above the U.S. dollar for the first time since early January.

Earlier in the day, the loonie fell by as much as 1.55 cents US in intraday trading – the biggest one-day drop in 2 1/2 months – after Statistics Canada reported that the Canadian economy barely edged forward in November.

Output from the depressed Canadian manufacturing sector decreased 0.3 per cent in November, reaching its second-lowest level since the beginning of 2007.

Overall Canadian production of goods fell 0.2 per cent from October and the gross domestic product, a measure of the economy as a whole, gained just 0.1 per cent.

The Bank of Montreal said the small November gain – half as big as the growth registered in October – supports the view that the Canadian economy is braking and will likely record a 1.5 per cent growth rate in the fourth quarter, down from 2.9 in the third.

The bank's senior economist, Sal Guatieri, noted that with U.S. demand for Canadian products easing further, exports of manufactured goods will apply an even greater drag on the economy going forward, as will a slowdown in construction.

Still, the Canadian economy is expected to outperform its bigger southern neighbour going forward, particularly because of the robust employment situation and strength in sectors such as oil and minerals.

"The Canadian economy should be able to muddle through this rough patch without too many wounds," predicted TD Bank economist Pascal Gauthier.

That may not be the case for the U.S. and more bleak news came out Thursday, including the rating downgrade of a major American bond insurer as part of the unfolding subprime mortgage crisis that has floored the entire housing market and shaken consumer confidence.

The bond insurers, or monolines, offer a potential lifeline to banks affected by subprime woes, providing some insurance against credit losses. If the monolines are in trouble, that means less available relief for financial institutions already struggling with losses related to bad subprime mortgages.

As well, initial U.S. jobless claims for the week ending January 26th jumped to 375,000 from 306,000 in the week prior, further indications the American economy is slumping.

In Canada, the deepest pocket of weakness in November was the forestry and logging sector, which saw output drop 2.1 per cent during the month and was 11 per cent lower than last year.

As it has for most of the year, the Canadian economy was able to keep its head above water thanks to consumers and the services sector, which advanced 0.4 per cent and 0.2 per cent respectively in the month.

After falling below 97 cents US last week, the loonie surged past parity this week to close at 101.31 cents US on Wednesday, largely in reaction to the Federal Reserve's aggressive attack on interest rates in an attempt to forestall a U.S. recession.

"The Canadian dollar's reaction was large, so it was a bit of a surprise because the gross domestic product (report) wasn't really that far from what economists were expecting," said CIBC senior economist Avery Shenfeld.

"You could also look at this in the context of the loonie having gained that ground in the last few days. It was a correction and might not all be due to the GDP report."

Opinion is divided on whether an American recession is unlikely, probable or already here.

Shenfeld, for one, doesn't believe the U.S. has yet slipped into a recession, saying other indicators, such as factory orders and household spending remain on the positive side of the line, if just barely.

Still, following the U.S. Federal Reserve's 125-point slashing of interest rates in the past two weeks, a growing consensus among economists believes the Bank of Canada will have little choice by to speed up its easing of rates as well, with forecasting a one percentage point drop by the end of June.

"One could have argued they should have cut half-a-point in January, but as it gets evidence of the U.S. slowdown, I think the bank will move up the pace for its next rate cut (on March 4)," Shenfeld said.

The central bank's senior deputy governor Paul Jenkins told a Commons committee on Wednesday that the bank regards a range of about 90 to 98 cents US for the loonie as justified by the fundamentals, such as commodity prices.

He said the bank would likely intervene if the dollar deviates too far from the range.

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