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Canadian Dollar ETF Weakens After IMF Sees Low Rates Until 2015


The International Monetary Fund believes Canada has some wiggle room to keep benchmark rates unchanged until early 2015, putting pressure on the loonie and Canadian dollar exchange traded fund.

The CurrencyShares Canadian Dollar Trust (FXC) dipped 0.6% Wednesday. FXC is down 5.6% year-to-date.

The IMF expects Canada’s inflation level to hit the Bank of Canada’s 2% target by the end of 2015 and GDP to expand 2.25% in 2014 from 1.6% this year, reports Ari Altstedter for Bloomberg.

Canada’s inflation was at an annual 0.7% in October, below the central bank’s target.

“We think there’s room for monetary policy to remain as accommodative as it is for the next few months, especially given that inflation is so low.” Roberto Cardarelli, the IMF’s mission chief to Canada, said in the article. “We think the Bank of Canada has room to wait and see, to remain on the sidelines for a little while.”

The Canadian economy is also moving slower-than-expected, with the Bank of Canada Governor Stephen Poloz pointing to delays in export and business investment.

Policy makers “should remain focused on sustaining growth until the rotation to exports and business investment gains firmer momentum, while assuring that the gradual unwinding of domestic imbalances continues and that the fiscal position is maintained on a sustainable trajectory,” the IMF added.

The iShares MSCI Canada (NYSEArca: EWC ), which tracks Canadian stocks, has only gained 3.8% year-to-date. Since the fund tracks Canadian-dollar denominated stocks, investors are exposed to currency risk, and the depreciating loonie has weighed on EWC’s returns.

CurrencyShares Canadian Dollar Trust

For more information on the loonie, visit our Canadian dollar category.

Max Chen contributed to this article.

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.