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Oil’s Slide Punishes Canadian Dollar ETF

The CurrencyShares Canadian Dollar Trust (FXC) lost more than 2% last week and finished the week near 52-week lows as oil’s rout deepened. Crude futures tumbled more than 10% last week and closed at seven-year lows.

Canada 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 ]

“The loonie declined as oil dropped to a six-year low, continuing a week-long slide after the Organization of Petroleum Exporting Countries abandoned its output limit. The currency’s fall has boosted the probability futures traders assign to a further interest-rate cut by the Bank of Canada, even as the Federal Reserve prepares to raise rates as soon as next week. The Bank of Canada cut its key interest rate twice in 2015, setting it at 0.5 percent in July,” reports Allison McNeely for Bloomberg.

The loonie looms large for Canada ETFs and that could prove to be a drag on those funds and the broader Canadian economy. In fact, some analysts see an extended, multi-year period of loonie weakness ahead.

Persistent downward pressure in Crude Oil has continued to exert downward pressure on the Canadian Dollar. Canadian GDP came in at -.08% for the first quarter of 2015 and -.05% for the second quarter. The oil rich provinces of western Canada are seeing higher unemployment as the energy industry sheds jobs. Still, there are some positive signs ahead for the Canadian economy. The GDP for June came in at a positive 0.5%. Housing prices in Toronto and Vancouver continue to climb. Canadian voters will be going to the polls on October 19th. There is currently a very tight three-party race, and economic news could very well determine if voters return the Conservative party to power or if they elect the Liberals or New Democratic Party candidates,” according to OptionsExpress .

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.