Oh Canada; Can Your Currency Crater?

Quotable

“To every complex question there is a simple answer and it is wrong…”

H.L. Mencken 

Commentary & Analysis

Oh Canada; can your currency crater?

We added Canadian dollar puts in our Currency Options Strategist and went long USD/CAD in our Black Swan Forex service today…here are some reasons why:

  1. Current Account Deficit.  This isn’t the Canada “export all things in the ground as fast as you can” anymore.   The current account deficit has been negative for 20 quarters in a row.  Juxtaposed against the Commodities Index (CRB) you can suspect it has impacted.

2. Jobs.  this is from The Globe & Mail today:

“A wave of Canadian companies has shifted into job-cut mode as competitive pressures, weaker commodity prices and the perception Canada is a costly place to do business dent confidence.

“A raft of layoffs and plant closings have been announced in recent months in sectors ranging from manufacturing to retail, media and energy. The timing of the announced reductions vary, but a conservative tally shows they number more than 4,800 workers since Oct. 1.”

3. Relative yield correlation with the currency.  Two-year benchmark yield spread Canada minus United States (right scale) versus USD/CAD (left scale):

4. Technical wave view.