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Currency Snapshot- Tough Luck for the Canadian Buck…

Currencies / Canadian $ Apr 14, 2008 - 09:24 AM GMT

By: Black_Swan

Currencies

This time last year we were talking about the brilliant run the Canadian dollar was making towards dollar‐parity. Sure enough, in dramatic fashion, the Loonie crossed the $1 mark.

But for much of that historic run, the Canadian dollar traded in a tight negative correlation to the U.S. dollar – the dollar went down as the Loonie went up, or vice versa. It was in August of last year that the correlation began to fall apart. The red vertical line in the following chart marks the spot ...


Keep in mind, late August was also when the Fed began an extensive rate cutting campaign in order to alleviate the impact of credit turmoil on the economy. The Bank of Canada followed up with their first rate cut a few months later as it was believed that Canada’s economy could be vulnerable to similar concerns.

That maneuver marked the top for the Canadian dollar. And it’s not been able to take another shot at those levels even while crude oil prices (normally a boon to Canada’s economy) have risen to record levels.

Since August, the correlation between the buck and the Loonie has loosened and also become slightly positive – the Loonie goes up when the buck goes up, and vice versa.

Unfortunately, when it comes to currencies, you don’t really want that distinction. Could a break to all‐time lows for the dollar spark a similar breakdown for the Canadian buck?

Jack Crooks

Black Swan Capital LLC

http://www.blackswantrading.com/

Black Swan Capital's Currency Snapshot is strictly an informational publication and does not provide individual, customized investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer.html

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