The Canadian dollar's behavior is reminiscent lately of a period in the recent past. Notice the convergence of the 20 day, 50 day and 200 day Moving Averages in July.
Looking at the second chart, we notice a similar pattern in the May to October period of 2008. What remains to be seen is whether we will once again see a large pullback in the CAD compared to the US dollar. For that to happen, we would expect to see a large drop in the price of crude oil, perhaps to the $50 or $60 range and a drop in the S&P, possibly below 900. As one of our astute readers pointed out, the CAD is highly correlated (close to 90%) to the price of Crude Oil and the S&P 500.
If this does indeed happen, Canadians may be wise to consider gold or even US dollar holdings for the short to medium term to protect their buying power.