Monday, June 24, 2013

Not surprisingly, the Loonie remains weak

As with most investment vehicles, the Canadian dollar (CAD) -- otherwise known as the Loonie -- has declined precipitously since June 19th, continuing a trend that has been in place for many months.

The CAD hourly chart shows the breakdown from support on June 19th followed by the near-uninterrupted descent:


The daily chart illustrates the downtrend in place since last September and the recent break in support at 0.96:


The weekly chart displays the long, gradual rise and roll over of the CAD, starting back in 2009:


Note the downtrend actually spans beyond 2012 back to 2011, and also note the recent breach of the longer-term rising trend line.

The CAD's continued weakness is not surprising since all you need to do is refer to the price action of gold and commodities in general. The chart below plots the CAD (red line), gold (green line) and the Reuters-CRB Index (blue line).


Clearly there exists a very positive relationship between the three, one that goes back several years. The rolling 50-week correlation between the CAD and commodities index (CCI) has remained above zero for almost all time periods, and most often well above zero. This strong positive correlation makes sense since the bulk of Canadian equities are natural resource or commodity-related.

I've been bullish on the US dollar (USD) for some time as it has remained in a nice, fairly well-defined uptrend since late 2011:

As long as the USD remains strong, it will continue to reflect a bearish environment for the CAD and commodities. I've shown in the past the long-term chart of the USD versus commodities, clearly a negative relationship, and not surprisingly the same holds true for the CAD vs. USD:


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