Loonie Lost: Canadian Dollar ETF Falters

The PowerShares DB US Dollar Index Bullish (NYSEArca: UUP), the U.S. Dollar Index tracking ETF, is down about 1.5% in the past month, a performance that may come as a surprise to some given all the chatter about a strong U.S. dollar and tapering of quantitative easing. UUP is up almost 2.8% in the past six months and a gain of more than 2% in just the past week shows the greenback is flexing its muscles.

Some developed market currencies have fared decently against the dollar as of late, including the British pound and even the euro. Other developed market currencies, the Australian dollar being a prime example, have struggled mightily against the greenback. Put the Canadian dollar and the CurrencyShares Canadian Dollar Trust (NYSEArca: FXC) in the latter category. [Risky Currencies Slide]

Canada’s status as major producer of gold and silver is one reason FXC is off nearly 6% year-to-date. While the loonie is a one of the commodities currencies, the commodity the loonie is usually linked to is oil because Canada is home to some of the largest oil reserves in the world outside of Saudi Arabia. It is not just the repudiation of the commodities trade that is weighing on the loonie. Intensifying speculation that the Federal Reserve will soon wind down its stimulus efforts has pressured the Canadian currency. [Slowing Exports, Fed Plans Hurt Canadian Dollar ETF]

On Monday, the loonie touched its lowest levels in nearly two years against its U.S. counterpart as implied volatility for three-month options on the Canadian dollar versus its U.S. counterpart traded at 8.87%, the highest point in a year, reports Ari Alstedter for Bloomberg.

Last week, Canada delivered disappointing retail sales and inflation data. USD/CAD currently trades just over $1.05 and some technical analysts believe if the $1.0556 level is breached, more losses await the loonie, Bloomberg reported.