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Burger King-Tim Hortons Merger Boosts Canadian Dollar

H.S. Borji
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Burger King-Tim Hortons Merger Boosts Canadian Dollar

The Canadian dollar rebounded for a second consecutive day against its US counterpart following news Burger King (NYSE:BKW) had acquired Tim Hortons (NYSE:THI) , Canada’s favourite coffee chain.

American fast-food giant Burger King on Tuesday confirmed it will purchase Canadian coffee powerhouse Tim Hortons in a deal that would take Canada’s pioneer coffee brand international. The deal, which is reportedly worth $12.5 billion, would make Burger King’s parent firm 3G Capital a 51 percent owner of the new company.

The merger is expected to make the new company the world’s third-largest fast-food brand.

The deal boosted the Canadian dollar because the American buyer needs Canadian currency to complete the acquisition.

The loonie, as Canada’s currency is called, rose 0.56 percent to 0.9180 US. The loonie has advanced nearly 1 percent versus the greenback over the last two days as the markets reacted to the news.

In other trading, the loonie climbed against the Japanese yen, as the CADJPY advanced 0.43 percent to 95.42. The pair has likely entered into overbought territory, and faces initial resistance at 95.53. On the downside, initial support is likely found at 94.65.

The Canadian dollar strengthened against the euro, as the EURCAD tumbled 0.33 percent to 1.4373. Initial support is likely found at 1.4361 and resistance at 1.4477. The loonie strengthened against the British pound, sending the GBPCAD 0.31 percent lower to 1.8056. Initial support is likely found at 1.8038 and resistance at 1.8187.

Tim Hortons Inc is not only Canada’s largest coffee shop, it’s the country’s largest fast food service. At the end of last year, Tim’s had nearly 4,600 restaurants in Canada. Internationally, Tim’s has more than 800 locations in the United States and several dozen in the Persian Gulf.

According to Burger King executive chairman Alex Behring, the new deal will help expand the Tim Hortons brand globally.

Although the headquarters of Burger King and Tim Hortons will remain in Miami, Florida and Oakville, Ontario, respectively, the new merged company will be based in Canada.

The deal likely won’t alter the long-term outlook on the Canadian dollar, which has been entrenched in negative territory amid shaky fundamentals and rising global demand for the greenback. Prior to the announcement of the Burger King-Tim Hortons merger, the loonie was trading at three-month lows against its US peer.

The loonie suffered a setback last week after Bank of Canada Governor Stephen Poloz said a shaky labour market gives policymakers the scope to keep interest rates near historic lows.

The Bank of Canada has kept its benchmark interest rate at 1 percent since September 2010.

Commenting at the Federal Reserve’s annual Jackson Hole Symposium, Poloz said the growing tendency toward part-time work has slowed down income growth and contributed to persistent slack in the labour market.

Canadian employment increased 42,000 in July, Statistics Canada reported earlier this month, with all the gains attributed to part-time work. Three quarters of the 157,000 jobs created over the previous year were part-time, official data showed. The unemployment rate edged down 0.1 percentage point to 7 percent.

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