Thomson-Reuters Deal Could Result In Loonie Sell-off

Shares of Thomson Corp (TOC) were down more than 5%, or C$2.63 to C$44.60, at around 10:30 a.m. ET after both its board and Reuters Group PLC's (RTRSY) confirmed that they are in discussions for the combination of their two businesses.

The price Canada's Thomson Corp could pay for Reuters, which would create the world's biggest news and financial data company, is estimated to be U.S.$17.6-billion.

Scotia Capital foreign exchange notes that while M&A activity continues to be positive for the Canadian dollar, a Thomson/Reuters deal would be the first major coupling that would see the need for some Canadian dollar selling (buying approximately £4.4 billion-British pounds/ selling $9.7-billion Canadian dollars), based only on the cash component of the deal says Scotia Capital currency strategist Camilla Sutton.

Technically, USD/CAD is quickly approaching its 2006 low of C1.0932 (US91.47¢), a breach of which would see levels not seen since the late 1970s, Ms. Sutton said.

"With oil down 7% in the last week, M&A creating the need for CAD selling and a consolidation long overdue, we wouldn’t be surprised to see USD/CAD back up in the next few days," she notes.

Still, until this happens, Scotia would not recommend fighting the current trend of the U.S. Dollar down and the Canadian dollar up.

"Yesterday's news for the Alcan bid way outweighs that [the Thomson/Reuters deal]," Ms. Sutton said.

Editor's note: CurrencyShares Canadian Dollar Trust (FXC) tracks the movements of the Canadian dollar through foreign cash deposits and/or futures contracts.