About to get Bucked

The most common question I get asked these days is where the Canadian dollar is going vis-à-vis the US dollar. Coincidently, since the bottom of the markets in March the trend in the Canadian dollar has been on the rise, notwithstanding some fluctuations over that period. This year the Canadian dollar has traded from just below 80 cents to just above 97 cents and is currently trading at about 92 cents.
If we look at the charts the current price crossed the 50-day moving average in March and has maintained its status with the exception of a short period in the summer. The current price has also remained above the 100 day moving average. When the Canadian dollar either rallies or reverses it usually does so for an extended period and establishes a strong trend. Although we have a strong indication when we look at the moving averages, MACD and relative strength tell a different story. Both have started to wane recently.
The October 24-31st edition of The Economist reported that statements by The Bank of Canada have had a strong impact on the recent movement of the Canadian dollar. In the article, Dollar depreciation, Denial or acceptance, the Economist reported, “ In a statement released after its monetary-policy meeting on October 20th, Canada’s central bank said the strength of the Canadian dollar would more than offset all the good news on the economy in the past three months. The currency’s strength would weigh on exports, said the bank’s rate-setters, and mean that inflation would return to its 2% target a bit later than previously forecast. Foreign-exchange markets took the hint: the Canadian dollar fell by 2% against the American one after the bank’s statement.”
Aside from what The Bank of Canada says, the Canadian dollar has a number of variables that impact its value. Most notably demand and supply issues, the US dollar, energy, materials, interest rates, the markets, international currencies and economic growth. It is difficult to predict which of these variables are going to impact the Canadian dollar directly or indirectly next, however, my bet would be whichever way the markets go these days so does the Canadian dollar. Conversely, the US dollar has been negatively correlated to the markets. If this is the selloff we have been waiting for look for the Canadian dollar to fall in the short term.
We are hosting a Friday Morning Coffee at 9am this Friday November 6 in Kelowna and again Friday Nov 20 in Vernon. Please call or e-mail to reserve your seat.