The Canadian dollar exchange traded fund is strengthening on the back of a more optimistic outlook in the U.S., the country’s largest export market, and is more closely tracking movements in the equities market.
CurrencyShares Canadian Dollar Trust (NYSEArca: FXC) is in negative territory for 2012 but the recent bounce has carried the ETF above its 50-day moving average.
The Canadian dollar, or “loonie,” appreciated to a week high against the U.S. dollar after three back-to-back gains, reports Allison Bennet for Bloomberg.
The U.S. dollar was trading down close to 1.02 Canadian on Friday after touching C$1.0181 earlier, the strongest level since Dec. 12.
“The U.S. economy is looking a bit more resilient even though it’s growing at moderate levels,” Eric Viloria, senior currency strategist for Gain Capital Group LLC, said in the article. “The Canadian dollar is responding more to the overall risk environment so that equities are a driving factor.”
The Canadian dollar has shown a higher correlation to the equities market. For instance, the one month correlation between U.S. equities and the Canadian dollar hit 0.9348 on Nov. 14, the highest since Bloomberg began tracking in 1992, compared to the average 0.2426. On Friday, correlation was at 0.8915 – anything closer to 1 signals an increasingly lockstep movement.
“There is some room that you see Canada to be one of the better performing currencies in 2012 based on those broad themes,” Stewart Hall, senior currency strategist at Royal Bank of Canada, said.
CurrencyShares Canadian Dollar Trust
For more information on the loonie, visit our Canadian dollar category.
Read the disclaimer; Tom Lydon is a board member of the funds for Rydex|SGI.
Max Chen contributed to this article.