Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Dow Short-term Trend Analysis - Coronavirus Trigger a Stocks Bear Market? - 24th Feb 20
Sustained Silver Rally Coming? - 24th Feb 20
Should Investors Worry about Repo Market and Buy Gold? - 24th Feb 20
Are FANG Technology Stocks Setting Up For A Market Crash? - 24th Feb 20
Gold Above $1,600 Amid FOMC Minutes and Coronavirus Impact - 24th Feb 20
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Canadian Government Economic Stimulus Threatens the Loonie

Currencies / Canadian $ Aug 23, 2009 - 07:18 AM GMT

By: Money_and_Markets


Best Financial Markets Analysis ArticleBryan Rich writes: caught its cold. And the currency of this key U.S. trading partner has since become a victim of the ebb and flow of global risk appetite.

For instance, last year, when uncertainty was high and money fled to the center of the global economy, the U.S. dollar and the Canadian dollar fell sharply.

Now that risk appetite has returned to the global financial markets and money is flowing back out of the U.S. dollar, Canada’s loonie has had a strong recovery. In fact, the Canadian dollar has rallied 20 percent against the U.S. dollar from its weakest point last March.

As for the economy, recovery is on track in Canada. But Canadian officials are worried about the recent strength of their currency. They’re concerned it has already dampened the path to recovery and could ultimately derail it.

Intervention Threats …

The governor of the Bank of Canada (the nation’s central bank) has said that a stronger Canadian dollar was a major risk to economic growth. And the Canadian finance minister has signaled that steps might be taken to dampen the volatility in their currency.

The loonie has had a strong rally. Now the government is threatening intervention.
The loonie has had a strong rally. Now the government is threatening intervention.

These are huge statements — attempts to influence market sentiment. Of course, the next step is physically doing something about it.

Official intervention is when a central bank (or an agent of the government) buys or sells foreign currency in an attempt to influence exchange rates. In the past, many governments have intervened in foreign exchange markets to try to:

  • Stop the appreciation of their currency,
  • Defend against the depreciation of their currency,
  • Or to simply slow the movement of its currency.

As you can see in the chart below, the Canadian dollar (the white line) has been dragged around by the “risk” trade and has been tracking the performance of the S&P 500 (the orange line) very tightly.

Canadia Dollar and the S&P 500

Source: Bloomberg

The S&P 500 has been the proxy for risk appetite and perception of economic recovery in the U.S. As optimism about the outlook for a global recovery has gradually improved since March of this year, so has the strength of the stock market … and, therefore, so has the strength of the Canadian dollar.

Fundamentals Point In Canada’s Favor …

The big Canadian banks managed to mostly steer clear of the load of toxic assets that crushed American and European banks. Its banking system was considered the world’s soundest last year … they required no new capital and remained profitable.

Canada implemented a $32 billion stimulus package to boost its economy.
Canada implemented a $32 billion stimulus package to boost its economy.

Even so, Canada recognized the exposure of its economy to the growing global recession and acted aggressively in coordination with five other central banks to begin slashing interest rates down to near zero. In addition, Canada rolled out a fiscal stimulus package.

Still, the economic consequences from recession have been harsh for Canada, as a neighboring country that relies so heavily on the health of the U.S. economy.

Indeed, the IMF expects Canada to contract 2.3 percent and then return to an anemic 1.6 percent growth next year. Those forecasts are expected to outperform the U.S. in both 2009 and 2010.

On a relative basis then, the Canadian dollar should be outpacing the U.S. dollar. But currencies aren’t trading on relative growth right now. It’s all about the risk environment.

So if you think the fundamentals of the recovery are robust, you might expect global stock markets and the Canadian dollar to go higher. Alternatively, if you think that there are growing question marks about the sustainability of the recovery, you’re anticipating that investors will rein in risk, and stocks and the Canadian dollar will go lower.

For clues, let’s look at …

The Technical Picture For the Loonie …

Below is a weekly chart of the U.S. dollar/Canadian dollar exchange rate. You can see the tight downtrend from 2001 to 2007.

For Elliott Wave aficionados, this chart looks very interesting. The five wave downtrend is now being corrected through an impulsive A-wave, a corrective B-wave and a potential impulsive C-wave that projects the U.S. dollar/Canadian dollar exchange rate toward the $1.50 mark.

In others words, the technical set-up indicates a rising U.S. dollar and a sinking Canadian dollar.

U.S. Dollar vs. Canadian Dollar (weekly)

Source: Bloomberg

The technical picture creates a viable bearish scenario for the Canadian dollar. And with the added element of intervention talk, betting on a lower loonie makes for an attractive risk/reward trade.



P.S. I’m now on Twitter. Follow me at for frequent updates, personal insights and observations from my travels around the world.

If you don’t have a Twitter account, sign up today at and then click on the ‘Follow’ button from to receive updates on either your cell phone or Twitter page.

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit .

Money and Markets Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules