Bank of Canada rate announcement, first-quarter earnings to focus investors

The Canadian dollar could find further lift this week as the Bank of Canada makes its next announcement on interest rates while stock market investors will get their first look at corporate earnings for the first quarter.

The central bank is expected to leave its key interest rate unchanged at one per cent when it makes its announcement on Tuesday.

"I think with the election looming, there is unlikely to be any policy stance change," said Camilla Sutton, chief currency strategist at Scotia Capital.

"There are some reasons why the Bank of Canada should be turning more hawkish. But, all in all, inflation levels in Canada are very contained."

The Bank of Canada started raising rates from near zero last June, but it called a temporary halt to hikes last September when the economy started to falter.

There are few expectations the bank will move on raising rates until at least the middle of this year, but economists will look to see what the Bank of Canada has to say about the recent rise in the Canadian dollar and the impact on the economy.

The dollar surged as high as 104.98 cents U.S. at the end of last week, a fresh three-and-a-half year high, and a big jump from the 100.59 cents U.S. where it started 2011.

The loonie has benefited from record high gold prices, oil prices that have surged about 30 per cent from mid-February and a weaker U.S. dollar.

"Oil prices are up around US$111 and that’s very stimulative for the Canadian economy," added Sutton.

"Take that combined with a very loose U.S. monetary policy and a weak fiscal position an negative sentiment towards the U.S. dollar so we have a broadly weaker U.S. dollar. And the two combine quite well to create this rally in CAD."

Meanwhile, aluminum producer Alcoa Inc. is expected to report its first-quarter earnings after the close of trading Monday, the first Dow component to do so.

Hopes are high the company will report a profit of 27 cents per share on US$6.16 billion in sales. Alcoa lost US$201 million, or 20 cents per share, on sales of US$4.9 billion a year ago.

The company's performance reflects broader economic trends, because its products reach a range of businesses including automobile, trucking and aircraft companies, consumer products and construction. Nearly 80 per cent of its sales are in the U.S. and Europe.

"You should see some benefit from the stronger auto production, but you will also see there is a lot of consumer products and Alcoa has exposure to aluminum packaging and consumer goods," said Norman Raschkowan, North American strategist at Mackenzie Financial Corp.

U.S. banks JPMorgan Chase and Bank of America are also expected to report earnings this week and analysts think that the sector will start showing improvement after getting mauled during the financial crisis of 2008.

"They’re making money but more importantly the problem loans are from 2005 to 2007 and every quarter that we get past it, they become a smaller part of their book as they keep adding new loans," said Chris King, portfolio manager at Morgan Meighen and Associates.

"Over the next year and a bit we will see U.S. banks recover. We’re seeing a bit of credit increase from the regional banks — small but it’s starting and that’s what you really need for enhanced economic activity."

Investors will also take in earnings from other companies including Google and toymakers Mattel and Hasbro.

In Canada, media firms Corus (TSX:CJR.B) and Astal Media (TSX:ACM.A) are expected to report earnings on Thursday.