2011: Gloomy for the Loonie?

With oil prices going every which way and the U.S. and euro zone popping up one market-moving report after another, there’s no way that the Loonie’s price action can’t be as crazy as the other major currencies! Let’s take a look at the four major themes that influenced Loonie traders.

Canadian Dollar 2011 Review

1. BOC kept the market guessing

Even though the Bank of Canada kept its interest rate at 1.00% for the ENTIRE YEAR, it didn’t stop Loonie traders from speculating on every decision. And who could blame them? Both the RBA and the RBNZ cut their interest rates twice this year!

If we review the interest rate statements made by the BOC, we’ll see that the central bank continuously tries to juggle between stimulating its domestic economy and worrying over its trade relations with its largest trading partner, the U.S. The markets identified with the central bank’s dilemma, which inspired mixed speculation every time the BOC is scheduled to release its decisions.

2. Economic news from the U.S. provided volatility to CAD pairs

As I mentioned earlier, Canada’s leaders always keep one eye on the U.S. economy. With its largest trading partner just a stone’s throw away, Loonie traders constantly worried over the impact of U.S. economic reports on the Canadian economy.

As the USD/CAD chart above shows us, traders also thought that U.S. economic growth was important for Canada. For example, USD/CAD rose sharply around the middle of the year when S&P downgraded U.S. debt for the first time in history. On the other hand, we also saw the pair fall when the U.S. began popping up better-than-expected employment figures.

3. Political uprisings in the Middle East took its toll on oil prices

If you’ve done your homework and read the Black Crack lesson of the School, you should know that Canada is one of the largest oil-producing countries in the world. This is probably why the Loonie reacted consistently to notable oil price fluctuations.

Don’t believe me? Take a look at the chart above. We can see how USD/CAD reacted when Egypt’s Hosni Mubarak submitted his resignation and eased concerns on the political stability of neighboring oil-producing countries, or when there was an oil uprising in Libya that endangered a few oil channels.

4. The Euro Zone debt crisis hits… well, every “risk-on” currency

Of course, I could not write a review of Loonie trading without mentioning the impact of the euro zone debt crisis on the high-yielding Loonie! Speculations of a Greek debt default alone sparked a selloff of the “risk asset” in order to get back to the safety in the U.S. dollar, boosting USD/CAD by a few hundred pips in a matter of weeks. Soon after, Merkozy‘s determination to find a solution to the euro region’s problem then brought the pair significantly back lower on the charts later in the year.

Developments in the euro zone have already taken the spotlight in Loonie trading for 2011, and this new year may not be an exception. When will those European leaders get it together?!

So there you have it, folks! While the Loonie’s price action hasn’t exactly been the craziest this past year, at least we now know that it isn’t any less interesting than the other major currencies! The question is, will the Canadian economy continue to react to the same issues, or will new themes arise to shake it all up?

Hit me up if you have any ideas!