Buoyed by rebounding oil prices, the CurrencyShares Canadian Dollar Trust (NYSE: FXC) has gained nearly 3% over the past two weeks, but some foreign currency traders remain cautious on the Canadian dollar ahead of elections in that country, slated for next week.
The Bank of Canada has been a reliable arm in guiding the Canadian economy, writes Luke Kawa for Bloomberg. For instance, the central bank was among the first to adopt a formal inflation target and has enjoyed success in achieving its targets. [Canada ETF Back on Track with Economy Recovering]
The country also enjoys large natural resource reserves. As we have witnessed, Canada’s oil production could either lift or weigh on the economy, depending on the energy market. Additionally, as we hear more about droughts and dry weather conditions, Canada’s freshwater reserves, which account for 20% of the world’s freshwater, could come into play.
Some observers have warned of a bubbling real estate sector, and traders have bet against Canadian real estate through shorting Canadian banks. In the meantime, the national median home price continues to climb to all-time highs. We will have to monitor how the government plans to engineer a soft landing for the real estate market in an attempt to mitigate a potential fallout. [Tepid Response by Canada ETFs to Surprise Rate Cut]
Currency traders are “paying more for options contracts that protect against currency swings expiring next week — the aftermath of Canada’s Oct. 19 vote — than for similar contracts that expire in a month, data compiled by Bloomberg show,” report Ari Altstedter andVincent Cignarella for Bloomberg.
Policy makers surprised observers at the start of the year with a 25 basis point cut to the benchmark rates in an attempt to diminish the impact of falling oil prices. Looking ahead, the central bank projects the Canadian economy to quicken to a 1.8% annualized growth rate this quarter and to 2.8% in the third quarter. Poloz also anticipates that the economy will return to full capacity at the end of next year. [Rising Oil Could Provide Solid Footing for Canada ETFs]
“It now costs 9.3 percent to protect against swings in the Canadian dollar versus its U.S. peer over the next week, compared with 9.1 percent for the same protection spanning the next month, the data show,” according to Bloomberg.
FXC is down 14% over the past year.
CurrencyShares Canadian Dollar Trust
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.