The Loonie Gets Lanced

The Canadian Dollar has been under pressure for a few weeks.  The latest results confirm my earlier suspicion that there is a lot of air the Loonie has been floating on.

My guess is we will see the Loonie drop below 92 cents in the near future, as the flash crash gave us some insight into potential weakness of Cdn$ and Crude Oil.  Note the intraday drop in the Loonie on May 25th, the same day oil touched $68/ barrel.

Note that a potential Death Cross is also forming.


  1. The CAD is highly correlated to the S&P 500 and to oil prices, and has for several years. If memory serves the correlation is around 90%. Should the S&P500 hit the 1040 level (and its inches away) then the anticipated drop is to the high 800s. The implication for the CAD and oil prices are relatively clear -- a drop of the CAD below 1.10 and a drop in oil prices below the $65 level.

    This will make manufactured good cheaper -- not a large component (24%) of the CDN economy, and make imports much more expensive -- generating inflation.

    Bottom line a weaker CAD is a mixed blessing for the Canadian economy. For what its worth most Canadian bank's economist are seeing the CAD at parity for 2011.


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