Tumbling Loonie Not Yet Benefiting Big Canada ETF

ETF Trends

A weaker currency is often believed to be a benefit to a country’s exporter, but the tumbling Canadian dollar is not yet having a significant impact on the iShares MSCI Canada ETF (EWC) .

Home to $3.22 billion in assets under management, EWC is by far the largest Canada ETF trading in the U.S. and the ETF does offer ample exposure to export-driven sectors. For example, energy, materials and industrial combine for 46% of EWC’s weight, according to iShares data.

That has not been enough to really lift the ETF as the Canadian dollar, also known as the loonie, has tumbled. In the three-month period ending Jan. 17, the CurrencyShares Canadian Dollar Trust (FXC) is off 6.2%, but EWC is up just 0.6%. To start 2014, FXC is lower by 3.2% while EWC has lost 1.5%. [Canadian Dollar Most at Risk Developed Currency]

The loonie faces headwinds, but the weaker currency may not be much help to EWC. An extended period of slow growth coupled with a strong loonie may have damaged Canada’s export market more than previously believed, the Financial Times reported, citing the International Monetary Fund. Also weighing on the Canadian dollar is the notion that the Canadian central bank could opt to lower interest rates later this year after some currency traders had been pricing in a rate hike in 2015, according to the FT.

“Analysts say currency markets are currently pricing in a 20 per cent chance of an Bank of Canada interest rate cut this year,” according to the Canadian Press.

Bad news for FXC, which has not traded above its 50-day moving average since late October. Although EWC has disappointed as the loonie has lost ground, there are some signs of life among Canada ETFs.

For instance, the IndexIQ Canada Small Cap ETF (CNDA) is higher by almost 2% to start 2014 and that is export-intensive as materials and energy names combine for nearly 75% of its weight.

iShares MSCI Canada ETF

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ETF Trends editorial team contributed to this post.

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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