Canadian Dollar ETF: Why It’s Strong

April 8th at 12:00pm by Tom Lydon

ETF canada dollarBacked by a favorable economic outlook fueled by growing demand for commodities, the Canadian dollar exchange traded fund (ETF) has been steadily appreciating to become one of the top-performing currency funds of the last six months.

On Tuesday, the Canadian dollar, also known locally as the “loonie,” was at parity with the U.S. dollar for the first time since July 2008, reports Don Curren for The Wall Street Journal. In late trading, the Canadian dollar fell bellow the US$1-mark at US$0.9988, but it had climbed above parity earlier in the day. [Why the Canadian Dollar ETF Is on a Tear.]

Officials credit the Canadian economy’s strong fundamentals with the Loonie’s advances:

  • Canada’s commodities-based economy is expected to continue to benefit from growing demand as global economies recover. The government’s fiscal policies have kept their debt in check, with the federal debt to GDP ratio estimated to peak at 35.4% in 2010-11.
  • The higher growth has edged up inflation, and many observers project a rate rise in June. The Bank has pledged to keep rates at 0.25% till the end of the second quarter. [6 ETFs to Play the Global Recovery.]
  • Aided by a rise of 1.9% in manufacturing, 2.9% in wholesaling and 1.7% in construction, the Canadian economy expanded at its fastest pace in three years in January, writes Greg Quinn for BusinessWeek. Deputy Chief Economist Doug Porter from the Bank of Montreal says that they expect first quarter growth to be 5.5%, revised from a previous 4.7%, and raised 2010 growth projections to 3.4% from 3.2%.
  • The Central Bank calculated an economic expansion of 3.5% this quarter, followed by a 4.3% rate in the April through June period before slowing down through next year. Statistics Canada calculated that non-farm payrolls remained unchanged at 14.53 million in January from December, or down 1.1% year-over-year. [Hot New Trend: International Small Caps.]

For more information on the Canadian dollar, visit our Canadian dollar category.

  • Currency Shares Canadian Dollar Trust (NYSEArca: FXC)
  • iShares MSCI Canada (NYSEArca: EWC)

Read the disclaimer; Tom Lydon is a board member of Rydex|SGI.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Tickers

EWC FXC