After trading through parity with the U.S. dollar for the first time in 30 years, Barron's says it's time to short the Loonie ($Cdn). Economists often use purchasing-power parity [PPP] - a currency's ability to purchase a basket of goods - to gauge its value. On that basis, the loonie is worth a mere $0.81 U.S., though it currently trades at about $1.02 - a 26% overshoot.
Canada followed the Fed's lead in cutting interest rates in early December, and indicated more cuts may be in store, leading to a drop. Strong jobs and trade surplus data failed to boost the currency. "A currency that doesn't rally on good news is a good candidate to short," it says.
Its failure to decouple from the U.S., which still accounts for 75% of its exports and 25% of its GDP, make it vulnerable to U.S. weakness. Weak gains in worker productivity make the country increasingly uncompetitive.
Barron's says the loonie could be headed for $0.88-0.90 over the coming year. It suggests shorting CurrencyShares Canadian Dollar Trust (NYSEARCA:FXC), and reducing exposure to the country.