Analysis: Blocked foreign takeover adds to C$'s struggles
By Alastair Sharp
TORONTO (Reuters) - Canada's dollar will feel longer-term pain from the government's shock decision to block a Malaysian bid to take over Progress Energy Resources Corp (PRQ.TO: Quote), which suggests the country may be less receptive to foreign capital in the future.
The currency hit a two-month low after the news, which comes a week after the head of Canada's central bank omitted a key hawkish line from a speech, spurring many traders to sell the Canadian dollar.
Foreign takeover bids for Canadian resource companies helped drive the currency to a modern-day high above $1.10 in 2007.
Strategists said that while a drop in merger and acquisition activity since then has reduced their impact, hints that mining and energy companies are off limits to some buyers will weigh on the Canadian dollar's prospects.
"It's not just the actual impact of the dollars, it's the whole psychology behind the sentiment, if people believe the story then it has a bigger impact," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto, who nevertheless is projecting the Canadian dollar to appreciate by year-end.
FEAR FOR NEXEN DEAL
Ottawa said late on Friday it would not accept Malaysian state oil firm Petronas' existing C$5.17 billion bid for gas producer Progress Energy Resources Corp (PRQ.TO: Quote), in turn darkening the clouds around CNOOC (0883.HK: Quote) of China's C$15.1 billion interest in oil producer Nexen Inc NXY.TO.
"Clearly, having one knockback heightens expectations of a second," said Jeremy Stretch, head of foreign exchange strategy at CIBC World Markets in London. "There is a realistic risk that that deal could fall in the same direction." Continued...