Canadian Dollar ETF Weakens on Slowing Exports and Fed

May 29th at 4:45pm by Tom Lydon

The Canadian dollar exchange traded fund is depreciating as the country’s oil exports slow and the U.S. dollar strengthens on speculation of the Federal Reserve scaling back stimulus measures.

The CurrencyShares Canadian Dollar Trust (NYSEArca: FXC) is down another 0.6% Tuesday and has declined 0.6% over the past month. FXC is designed to track the price of the Canadian dollar through a deposit account denominated in the Canadian currency.

The U.S. dollar currently trades at around 1.04 Canadian dollars.

“The Canadian dollar is underperforming as commodity prices continue to dip and the U.S. dollar gets stronger amid eventual Fed tapering talk, which has weighed on risk assets,” Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp., said in a Bloomberg article. The recent durable-goods report “supports the idea of potential pullback from the Fed. And commodities are getting weaker, which suggests the currency is likely to continue to be soft.” [Treasury, Dollar ETFs in Focus on Bernanke]

Market observers also believe that the continued risk-on trade is working against commodity currencies, like the Canadian dollar.

“The risk sentiment and volatility has taken some of the edge out of commodity currencies,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit, said in the article. “Canada’s general trend has been strong growth, but the U.S. is looking cheap as the economy turns and we get more whispers of tapering, and that will continue to reflect on the Canadian dollar.

Nevertheless, futures traders are diminishing their bets against the Canadian dollar. For instance, the number of bets by hedge funds and other large speculators for a decline in the Canadian dollar compared with those on a gain, or net-shorts, was 33,852 on May 21, compared to 44,417 the previous week.

CurrencyShares Canadian Dollar Trust

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

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.

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