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.
For most Canadian the CAD has been a one way bet for 8 years. They are incapable of seeing their best interest. On the other hand, the purchase of real estate in the US by Canadians has never been higher than it is today.
ReplyDeleteCanadians are maybe weary of financial assets (and the vendors) instead opting for bricks and mortar. Plus you can use it when the snow gets to you.