Canadian Dollar More than Just a Commodity Currency

I like the Canadian dollar (CAD) more and more. It has some fundamentals that are definitely improving, and some other aspects that are definitely worth considering. Here’s why…

Traditionally, the loonie has been linked with the Australian (AUD) and New Zealand dollars (NZD). Now in the current market, currencies are often linked together by at least one of three elements: They either produce a high yield, they are commodity-based or they are funding currencies for a carry trade.

However, even though Canada is linked with the commodity currencies because of its rich natural resources, it is not a high yielder, nor is it a funding currency. Thus, up to this point, it has not been a real capital attracter.

But its strengthening fundamentals are already reflected. We saw a strong Canadian employment figure at the beginning of February, and last week, inflation nearly hit the official target. We may be looking for a rate increase out of the Bank of Canada.

If retail sales continue to rise and we see decent numbers out of its GDP report coming up at the beginning of March, we may be onto a good trade.


Bill Jenkins
for The Daily Reckoning