The Canadian dollar flatlined on Tuesday ahead of a key United States Federal Reserve decision that will come on Wednesday, July 31.
Oddsmakers are convinced that a rate cut is on the way, which should underpin the Canadian dollar as we move into August. Whether or not more cuts would be forthcoming is difficult to predict.
In any case, this decision will impact some TSX-listings in the near term. Stella-Jones (TSX:SJ) stock has dropped 7.9% over the past three months as of close on July 30. The Canadian dollar has performed well since late May, receiving a boost from the Bank of Canada which has maintained that it will try to avoid a rate cut until 2020 at the earliest.
Stella-Jones is a lumber company that makes railway ties and utility poles. Most of these products are shipped south of the border. This puts Stella-Jones at an advantage when the loonie is low. The stock suffered a sharp drop in July after long-time CEO Brian McManus announced that he would step down.
There were murmurs that his resignation indicates some underlying issues with Stella-Jones’ growth trajectory, but there is no evidence to substantiate this suspicion. Still, shares plunged after the announcement.
A Fed rate cut on Wednesday should be positive for the dollar, but with the BoC set to move on its own cut its rise will be capped to an extent.
Stella-Jones had an RSI of 28 as of close on July 30, which puts it in technically oversold territory. It is a suitable buy-low candidate in August.
