So I take it you are short dollar positions? Which ones?

I'm long Gold which is the anti-dollar position. More so then the EURO.

I am also short usd/can and long aud/usd.

I also have a small usd/jpy short which I hedge the carry traders with. She's expensive though.

Has anyone else ever posited that the majors tend to peak and bottom in serial order? I propose that the Loonie is a bellwether for the USD and other European currencies. Look at November 2007: Loonie peaked against the USD on November 6. Then it was the CHF on November 16. Then the GBP fell, together with the Euro. Since then the Loonie has resumed its uptrend, and Sterling has poked its head up out of the dirt also. I am very interested to see whether the pattern may continue with an antiUSD reversal, or at least, whether the price actions of the various pairs might continue to track each other is some determinate order. I would really like to see where the antipodeans and the yen fit in. Finally, I am interested to find the engine of these adjustments. I suspect interest rate expectations and beneath that, commodity prices, are the driving forces.

USDCAD - The ratio of long to short positions in the USDCAD stands at 2.19 as nearly 69% of traders are long. Yesterday, the ratio was at 2.13 as 68% of open positions were long. In detail, long positions are 1.0% lower than yesterday and 5.1% weaker since last week. Short positions are 3.7% lower than yesterday and 2.6% stronger since last week. Open interest is 1.8% weaker than yesterday and 8.2% below its monthly average. The SSI is a contrarian indicator and signals more USDCAD losses.

Source: FXCM Execution Desk

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In fact the auto and related manufacturing industries in Ontario dwarf the Canadian oil and gold industries in economic terms, and 80% of those autos are exported to the US. The C$ as a petro-currency is overhyped, no more so than in 2007.

That along with other numerous key points, such as interest rate differentials, are nicely explained in the excellent analysis below.
http://www.dailyfx.com/story/currenc...120167723.html

Ontario's manufacturing-based economy, which accounts for half of the entire Canadian economy, is increasingly slipping now. I think the C$ is set to drift significantly lower to where it belongs on a PPP basis.

I think you are mistaken....the commodity industry makes up some 60% of the canadian economy....manufacturing sector will burn. Revenue wise.

Why would the canadian dollar drift....nobody is in control anymore. Decreasing supplies of ALL commodities..$100 oil today. Destruction of ALL paper currencies..Gold up +$20 today.

Selling of the world reserve currency...in the midsts of major geopolitical term oil...the ONLY MUSLIM COUNTRY WITH NUKES IS ABOUT TO DESCEND INTO CHAOS!!!!!!

Canadian dollars BUY OIL and GOLD. Nobody wants the crap the US is selling in the form of CDOs and Derivatives.

Canada is selling energy and raw materials. Come one come all.

Gold moving so strongly is going to send the USD into full blown panic selling. Hold on tight.

moderately bullish

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Well, to settle the argument of the size of raw materials exports versus auto/machinery exports, I've attached the breakdown of the recent (October) International Merchandise Trade report. You can see the more specific details at the Stats Canada website.

And, in response to your fundamental outlook speculator, I have to say I disagree with the exuberance of your forecasts. There have been many sharp moves on market panic, but not many of them happen near extremes in historical price action. USDCAD is already near record lows, so it is very unlikely that you would see big names shorting at these levels just to make a few basis points - especially when so many cycled back on risk taking after their mortgage and credit desks have left big holes in revenues. As for your points on commodities, their correlation with spot is spotty at best - and degrades the further back you reference your beginning point.

Also, on the longer term outlook, Canada's economy is expected to slow and their interest rates are coming down as well; so they will start moving in step with US growth and rates - therefore cutting the relative value in Canada down the line that has been bid so high.

I'm only modestly bearish this pair, but still expect us to head much higher through the first quarter.

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Resources makes up only 6% of the Canadian economy, not 60%. http://en.wikipedia.org/wiki/Economy_of_Canada

Today is a perfect example of how the C$ has decoupled from oil and gold. Oil and gold surged 3% today, but the C$ lost 12 bp, and is down 2 cents from last week. This seems bearish for the overvalued C$.

As for gold, I can't guess where it'll go; this thread is about USDCAN. But gold has had a strong run and it has momentum, so who knows when that party will end.

Sovereign wealth funds and Buffet are starting to snap up bargains in the US at distressed prices. The US is still vibrant and dynamic, nothwithstanding the historic blunders of your present government. American companies are still the envy of the world. Canadians would love to buy a place in the sun (it was minus 20 in Toronto today). Prices for US assets are increasingly attractive to foreigners like me, so demand for US dollars is bound to increase eventually.

News clip:

"Bank of Canada's Dodge takes note that the [CAD]'s appreciation was on balance warranted by the "great improvement" in the country's terms of trade. Dodge adds in interview that it may now be slightly above what is warranted in historical normals but with the general direction having been exactly what one would have expected. On the biggest risk to Canada, he otherwise cites that it is not a slump or even contraction in US consumption but whether household demand, particularly from Asia, was unable to fill this former gap. Recall PM Harper noted last mth that the Bank of Canada saw the real value of the CAD somewhere between the 96 to 98 US cents range. Cad/Usd is currently trading above parity at around 1.0065/1.0076."

My personal comment:
Once again the CAD government is trying to persuade the market to relax and not drive the CAD too high. Further interest rate cuts are forthcoming and are needed in Canada. Inflation is a non issue because of the increase in currency value.

As for the USD, they may have inflation risk because of their weaker dollar, oil is going to cost them more as well as what ever they import. In Canada imports now cost Canadians less and oil rise is offset by the CAD rising as well.

How much higher can the CAD go? The market will decide but the government will set the interest rates and also the US influences Canada's growth as well, since the US is Canada's biggest export market. Canada is not just oil and gold, it is auto manufacturing and lumber exporting as well as a lot more. The high dollar has hurt those latter two sectors hard.

The Prime Minister is right about where the value needs to be. let's see where the market will drive it.

The previous three posts were excellent and right on, in my opinion.

Furthermore, any time a currency trader throws in "muslim" and "nukes" in the same thread as their forecast, I've learned to discount pretty much anything they say in the future.

Good news quote Curious-Joe. I agree with your analysis that the appreciating Canadian dollar will likely depress forestry, auto and other manufacturing sector activity; but I have an argument for your inflation comment. I believe, that like the US and many other economies, inflation is still a problem and that many governments are understating its influence on their consumers. Certainly raw materials have still become very expensive in Canada (I have attached a chart of WTI crude priced in Canadian dollars), regardless of the appreciation in the currency.

Officially, headline inflation (a reading I think is more realistic as to inflation pressures as energy and food costs make up a bulk of living costs) was at 2.5 percent in the previous reading; so the pressure is still there. Further consider that housing costs are played down in the calculation and it becomes more and more clear that the gov. figures are playing down the true cost of living.

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I just found this:

"All the activity appears to be in Cad/Jpy at present in the [CAD] market. Funds, however, continues to maintain a steady beat. Cad bulls will be disappointed at its failure to catch an oil hitting Usd 100 inspired bid, but risk aversion (and broad Jpy demand) has largely been winning out over recent sessions. With little on the fundamentals front, apart from BOC's Dodge noting the Cad may now be slightly above what is warranted, local contacts advise going with techs and still prefer a sell rallies bias for now. They tip a strength sell into any parity tests, despite stops in place above, with this area coinciding with the 21 and 100-day moving averages (0.9985/90). "

John,

I see your point on inflation.

I live in Canada and do notice costs of food seems to be going up.

As for fuel: The Price of fuel at the pump at least where I live seems to be holding roughly around $1.00 to 1.05 per litre CAD which is not much more then, where it was in price a year ago yet during the last year crude oil certainly has gone up in price. In part I assume the increased CAD has offset the price to a extent. After all since the CAD is worth more now, the real price at the pump is up equal to the increase in the CAD over this period. Another factor is refinery’s and how much capacity they have that affects the price at the pump.

Price of labor has increased in Alberta due to labor shortages here. So that adds to inflation. However there are layoffs in forestry and most likely there will be in manufacturing. I know the local office furniture manufactures are losing competiveness for US exports. (The US was their largest buyer)

In short, this is all very interesting. I still tend to believe interest rates will be cut again in Canada in a effort to lower the CAD's value and help our exports. There is some inflation but from where I sit it is not out of hand.

I shall attempt to attach a chart showing the difference in the pump price vs crude price of recent. Note crude is in USD and pump price is in CAD:

Regards,

Curious-Joe

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Pump prices vs crude.bmp (201.2 KB, 147 views)

I tend to agree with you, Joe, that the BOC will cut rates this year. However, I believe the intention will be more to alleviate the stress in the financial markets. While the strong CAD has hurt exports to a certain degree, the appreciation has helped to offset the rapid gains in oil prices (as you mentioned) which is a boon to consumers and businesses alike. Furthermore, with those producers in the Alberta tar sands benefiting from the global rise in oil prices, labor market conditions should remain tight and keep expansion firm. As a result, I don't think the appreciation of CAD is crippling enough to the Canadian economy for the BOC to cut rates for the sole reason of weakening the currency and boosting exports.