A blowout jobs report in March gave the Canadian dollar a boost, which is seeing bullish interest from traders. ETF investors can angle this play via the Invesco CurrencyShares Canadian Dollar Trust (FXC).
Getting currency exposure via a ETF wrapper could help mute downturns when U.S. markets start to experience wild swings, especially in the U.S. dollar. That said, as market positivism permeates the forex markets amid a global vaccine deployment, investors might be apt to take on more risk with currencies like the Canadian dollar.
FXC seeks to track the price of the Canadian Dollar, net of trust expenses. The fund seeks to reflect the price of the Canadian Dollar.
The sponsor believes that, for many investors, the shares represent a cost-effective investment relative to traditional means of investing in the foreign exchange market. FXC’s expense ratio comes in at 0.40%.
“Another strong employment report, with the headline rate showing 303.1k jobs created in March, above expectations of 100k,” a Daily FX article noted. “Gains were broad based with both full-time (175.4k) and part-time (127.8k) seeing a sizeable increase, while the unemployment rate dropped 0.7ppts to 7.5%, which is even more impressive considering the increase in the participation rate.”
“However, one caveat to point out is that this data is prior to the recently announced lockdown measures across Canada, which had been among the factors behind the recent CAD weakness as BoC expected hawkishness had come under question,” the article added further. “That said, while this data dispels some of those concerns, rising Covid cases across Canada does provide caution for the Loonie, particularly with oil prices struggling for upside as OPEC begin to turn on the production taps.”
A Canadian Alternative to Weakness in the Greenback
Gold is often used as the default trade for playing dollar weakness. However, FXC could also be an option in addition to being a pure play on Canada’s fiat currency, particularly for traders who sense weakness ahead for the greenback.
“This fund could be appropriate for investors seeking to hedge exchange rate exposure or bet against the greenback,” an ETF Database analysis noted. “For investors seeking exposure to the CAD/USD exchange rate, FXC is the only real ETF option available.”
See also: Top 8 Canada ETFs
On the flip side, Canada could also benefit from a rising dollar as both economies heal from a pandemic-ridden 2020.
“Canada and the United States have symbiotic economies. When one thrives in most cases so does the other,” an FX Street article added.
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