Will the Loonie Join the Party?

The return of the dollar bears this week has been the feature in the currency markets but the loonie has been a very inhibited participant at the party. With crude trading above $72/ barrel, gold at $1000 an ounce, and equities firm, why is the CAD's performance restrained?

Checking at the CME futures market yesterday, the results from Tuesday's trade was an increase by 18,750 contracts in the open interest. This means that some group with very deep pockets decided that, strong crude or not, it was time to short the CAD.

In comparison with the EURO, a bigger market which was printing new highs, the open interest in that market Tuesday, was up only 14,581 contracts. As might be expected, the CAD failed to make a new high, chased out some longs and sold off to 1.0835 before stabilizing.

The market has since rallied back to 1.0755. Why is it that this commodity currency with news of expanded business activity, housing starts reported yesterday were more than expected, not trading better? Should the market muster the strength to trade below the 1.07 handle, will the guys with the deep pockets be there to sell more? Market actions seems to be ignoring the news.

How long will this last? Since the USD appears doomed, my preference is to sell the USD versus the CAD in the 1.0830 area and risk 100 pips. Hopefully we will then test the resolve of Tuesday's sellers in the 1.07 area.

Comments

[the humble ...:]

The Deep pocket you refer to in your comment must be the Bank of Canada whose intention is to prevent the Canadian dollar from overheating.

Sep 10 08:26 AM

[Mad Hedge F...:]

iuk, Hedge fund longs have been bunching up in the Canadian dollar for the past two months. Canada makes what everyone wants, doesn’t have enough people to consume it, making them a major exporter of everything hot. I bet you didn’t know that the frozen wasteland to the North is our largest foreign oil supplier. Most guess Saudi Arabia. The Canadian supply is slated to double over the next 20 years, thanks to the environmental atrocity of oil sands. The land of Mike Myers, Jim Carey, and Pamela Anderson (note gratuitous photo below) is also a big supplier of gold, silver, lead, grain, uranium, wood, and other hard things. As for mosquitoes, they’ve got a lock on the market. Yet, their currency still offers a smidgeon of return which these days makes them positively high yield. Use dip to accumulate the loony. If you catch me singing “O Canada” in the shower, you’ll understand why.

Sep 10 02:32 PM

[bowman711:]

With the blind intent to force a new election in November, I'd say it is the Canadian Liberal Party that is putting a damper on the Canadian dollar. Even if the Liberals don't win the election, just the uncertainty that they MIGHT win is enough to scare anybody who remembers what they did to the Canadian dollar when they were last in powr.

Sep 10 03:05 PM