Time for Dollar Bears to Go Long Commodity Currencies

All may seem calm to the casual observer, and there may even be indications of a recovery: the Dow and S&P have outperformed Treasury bonds and precious metals, and the dollar has remained stable. Is this the beginning of a new bull market? Is it time for permabears to pack it up and go home? The chart below illustrates the situation.

To my fellow permabears: fear not, for contrary to what the always happy-go-lucky bulls may think, this is simply a rally within a bear market. Short-term traders may find it enjoyable, but the buy and holders? Well, now remains a good time to continue accruing precious metals.

But for traders like myself who are always looking for opportunities to trade their long-term perspective, know that the market is currently giving us a very good opportunity. Inflationists/Dollar bears have been eyeing commodities, and on the Australian dollar and the Canadian dollar -- currencies closely correlated with commodities.

Check the chart below on the Australian dollar.

And the chart below on the Canadian dollar.

Trading This Setup

I've already entered a short USDCAD trade, and will be scaling into this position as it moves in my favor. I would like to see a test of the 1.05 area. I'll add on the break below each key level, and will close out if there are signs the trend has reversed or is stagnating.

Disclosure: Short USDCAD.

Comments

[The Geoffster:]

We are witnessing one of the greatest bubbles in history. South Sea Bubble, Mississippi Bubble, Tulip Bubble, Dollar Bubble.

Apr 15 08:22 PM

[Ernest Wong:]

I would prefer a USD neutral strategy- long A$ and short Euro, or long Sterling and short Euro.

Apr 15 09:45 PM

[altaman:]

Where is the government's efforts to conteract/manipulate market forces clearer than in the Treasury market? Given that rates go down when the Fed is buying and then go back up when the Fed is not buying suggestd to me that the rate trend is up and conversely the USD trend is down. Eventually the Fed will have shot its wad and the nature trend will assert itself. Am I missing something?

Apr 15 10:20 PM

[IronMeteor:]

Go for it, but I taking the other side with the April 21 RBC meeting and QE on the horizon. Being long the Loonie into the RBC meeting is as smart as being long the other currencies that announced QE. Such as the Dollar, Franc, Pound and now Loonie. The massive FX losses after those CB meetings would make me think twice. But heck, why bother with fundementals, just read those charts and keep making crazy buys.

As for a possible test of 1.05 area, keep dreaming of it ever getting even below 1.10 until Oil is back above $100. The Loonie is the most overvalued currency out there. It should be trading $1.40 and will be by the end of summer. It is the most trade dependent nation in the G-20 (even more than Japan) and we have suffered a global trade meltdown. If you want a commodity currency, buy the Ruble, its cheap. Even the Aussie Dollar looks good compared to this rotten bird.

I am Long AUD/CAD since .77 and will stay long until this goose is cooked.

Apr 16 01:58 AM

[nobby73:]

"We are witnessing one of the greatest bubbles in history. South Sea Bubble, Mississippi Bubble, Tulip Bubble, Dollar Bubble."

Geoffster - I think you are correct, except that the Dollar Bubble has far surpassed all bubbles in history.

Apr 16 06:58 AM

[Tatertot:]

what are you people smoking? The dollar may be overvalued, but to even include it in the greatest bubbles in history is so laughable I question your grasp of finance. Just look at a 5 year chart of the dollar. That is not indicative of a bubble by any definition of bubble you choose. Bear market rally, sure. But nowhere near a bubble. I'm not trying to defend the dollar here, I suspect it will decline. Yet, beware as there are some good things going for the dollar, namely a narrowing in the currency and trade deficits.


On Apr 16 06:58 AM nobby73 wrote:

> "We are witnessing one of the greatest bubbles in history. South
> Sea Bubble, Mississippi Bubble, Tulip Bubble, Dollar Bubble."
>
> Geoffster - I think you are correct, except that the Dollar Bubble
> has far surpassed all bubbles in history.

Apr 16 12:59 PM

[Matthew Trahan:]

Firstly, the definition of a fiat currency should be -bubble-.

Also, if you think that a simple glance at the 5 year trend is any kind of treatise into the shit-storm that is the dollar (and most other currencies, they're all tied together), you're sorely mistaken.

I'm not aware of any commodity whose supply you can increase exponentially without experiencing some decrease in value.

However to say that it is a bubble in the traditional sense might be misleading. The dollar, along with all other fiat, is constantly losing it's value (to the tune of 90% in the past century). To expect it to further lose it's value isn't really a bold prediction.

Apr 16 02:33 PM

[bricki:]

I can't see investing in a fiat currency of any sort, regardless if it is issued by a country rich in natural resources or not. Zimbabwe after all is a country rich in natural resources and that isn't preventing them from having 195% inflation. Per Day.

It is much better to play this directly. LIke as in physical delivery where practical.

Apr 16 03:11 PM

[moe2009:]

I agree with bricki

Apr 16 04:49 PM

[gonecode6:]

I love the guy who is betting on the USA dollar and against the Loonie.
You have to be kidding right.....As of 2008, Canada’s total government debt burden is the lowest in the G8. ....The loonie is trade dependant for sure. But if you checked....Canada is the world's largest producer of zinc and uranium and a world leader in many other natural resources such as gold, nickel, aluminium, lead to name a few... The vast Athabasca Oil Sands give Canada the world's second-largest oil reserves...You think the United States needs any of this stuff...I know that China would love to have Canada on speed dial...Australia already is...Now lets look at the States..HMMM....As of April 7, 2009, the total U.S. federal debt was $11,152,772,833,835.89... example, projected expenditures for Medicare and Social Security programs exceed tax revenues by over $40 trillion over the next 75 years. Mandatory expenditures are projected to exceed federal tax revenues sometime between 2030 and 2040 if reforms are not undertaken............... may want to rethink you position...

Apr 16 06:42 PM

[The Geoffster:]

Perhaps some new technology will get us out of this entitlement mess but I don't see it happening in the next ten years. Ten percent of the people providing for the other ninety percent is not a sustainable metric.

Apr 16 08:39 PM

[Leif Peterson:]

what happens when the dollar bubble bursts? Where do you want to be?

Apr 18 05:04 PM

[IronMeteor:]

I wasn't kidding.

I sold my USD/CAD long at 1.2450 yesterday for a nice profit.
(2) Lots bought at 1.2010 last week. (I will rebuy when we hit 1.1990 again, we seem to do this dance every week. I would even short at 1.35, so I could care less about the dollar or loonie.)
I trade FX for a living, so I need to make money and not fall in love with anything.

And I could care less what Canada has in natural resources. You ever wonder what people in Toronto do, it aint mining. Just because BC has some mining jobs, doesn't mean the entire country benefits. The rest of the nation depends on other Jobs, the kind you get from trading with the US.
Manufacturing has been killed since 2002 with the strong Loonie and now the Gov. realizes its time to reset the rate and return to the good old days of 1.35 or higher.
The days of easy finance and service jobs are over. Now its time to get back to manufacturing and even mining, both benefit greatly from a cheaper loonie. The Oil sands are profitable with Oil at $50 if the USD/CAD is above $1.35. So everybody needs to start factoring in the exchange rate in their conversations about the Oil sands and all mining. A strong US Dollar can make Oil become profitable for foreigners at levels that seemed hopeless just last year.

Get a clue. The USD/CAD is going to 1.35 this year whether you like it or not. You can fight the tape or make some money.

Positions - None Right now- But I am going long the next trip down to 1.19. I have made this trade 4 times and sold at 1.24 to 1.30. Its golden. You then short at 1.30. Although I am raising that to 1.35 now in light of the BOC and their rate policies.

One more thing, when did we decide that exchange rates are based on how much zinc, gold, aluminum you have. Nobody consulted me. If you think the last 5 bubble years are the norm - good luck with that. Interest rates rule the roost and the BOC is getting down to the same as the rest of the losers. At that point, who cares how much aluminum you have.

Apr 23 02:07 AM