Hi it's Andy here, looking forward to this chat!
Hi Andrew. It's great to have you here answering our questions about the Canadian dollar. We have a lot of reader questions, so let's get started.
Given that the ccy mkts are driven mainly by events over the last 12mths, have to be bit careful on only using economic or interest rate indicators....
however, I like using 1yr CAD OIS for interest rates as it has a nice reverse correlation for the USD/CAD. It gives the markets exp. for where rates will be in 1 year. Besides that, like to watch metals overall and not one specific as I try to gauge general intl. economic activity. Copper, aluminum, oil, etc.
Big assumption that you're in a bubble as many would disagree. However, lets say you are right......
Best piece of research I can recommend is "After the Fall" by Reinhart and Reinhart....
in this 40 page paper, they find that RE prices fall on average 15-20% once the bubble bursts. Generally, there is a 38% credit/gdp ramp up for 10yrs prior to the bubble and then a 10yr ramp down by the same amount. Great paper, just google it with a pdf after and it pops right up.
I think the biggest issue for copper is China and China is def. slowing. Canada not showing the same dramatic econ. slowing and therefore the slight decoupling makes sense. However, you are correct in that it can't last forever. If China doesn't rebound, then Australia and NZ will be hurt as well as their currencies and the loonie will be negatively impacted.
At the beg. of the yr I said +/-5% around parity and I was wrong. it's been like +/-2%! Seriously, I think my prediction still holds. However, the recent pattern is one of strength for the CAD ag USD.....
overall, were in a downtrend channel for the usd ag cad that the bottom comes in around .9770 and the top is around 1.0035. 0.9800 will be tough sledding to get through on the first attempt.
I always recommend to trade it! Set a profit and loss level where you act. Assuming you have time to buy your car....IOW as an example, if you see the usd ag cad trade to 0.9600 or if usd ag cad goes to 1.0200, you act and buy the car. Set parameters and trade it.
Def a trend as long as China moves slowly to stimulate their economy. it's worrisome that the AUD Mining Minister said the boom in mining is over for Australia.
this is where the politics plays out. as i wrote today in my newsletter, the Busch Update, I continue to like to sell EURUSD rallies until proven wrong. Overall, I like the CAD ag the EUR. We peaked ard 1.2500 and were in a downtrend channel....but just off the lows. bit tricky here to sell, but that's my overall view.
Yes as long as Canada continues to manage its economy and housing market as well as they have been doing. The US equity market has been rallying on btr n btr econ data. The USD/CAD has been going down despite Cad data that's been surprising to the downside. That's a pretty strong endorsement for more upside for the C-dollar.
It will continue to cool exports and increase the trade deficit.
I think the biggest driver will be US economic growth and how the US deals with the fiscal cliff. While it's difficult to see what the plans will be for the cliff, the two candidates have very different corporate and individual tax policies. As an investor, I look for whomever will drive the economy higher with their tax polices....
to me, this will be Romney as he has a cut in the corporate tax rate from 35 to 25% and eliminates the 35% tax on repartiated dividends. While it's not perfect for job growth, it will contribute to growth overall in the US and therefore will /we'll see an increase in economic activity, and jobs. this will help reduce the overall deficit as well.
The question for you is this: how much more can you afford to lose? You should base this decision on what's best for you and your family. However, you should think about a strategy like the one I described below for the car purchase. Only you know what your finances are and how the value of the C-dollar impacts them. Be careful and conservative when it comes to these types of decisions.
Have to be careful with fees and costs. IDK wht is out there currently, would be good to test both and see which one gives the best returns for your situation.
GBPUSD is one of the more challenging pairs. UK was the most aggressive with QE and with their austerity programs. they also didn't get as big a pop from the olympics as they hoped. recent data shows their PMI bit stronger. big battle at BOE over more QE as well as nw govt. stimulus....
overall, gbpcad is a weaker version of eurcad with less downside potential.
Yes especially the banking. but hey, i work for BMO and we rock! Seriously, good things happen when you manage your country's finances and banking system. Along with energy, this will continue to drive FDI into Canada in the medium term.
Btr for elimination. If not handled well, US will subject itself to a Japan like decade of low/negative growth due to the servicing of the debt. Of course, it could get out of control if the market feels that there is no credible path forward.
Combo of slowing housing and slowing global growth.
Remember, BOC is still indicating they want to be one of the first CBs to act to raise rates. Carney repeated that when he spoke last and we'll see what they say after the meeting this week.
Take a read at the beg. of the discussion, but rates are imp., global growth is imp. and politics w/EU and US. It's always a mixture that evolves. If the world feels like it's going to end, then interest rates don't matter much.
Tough one as exporters have to deal with the loss of margins. If it strengthens a lot, then they start to export jobs to where their markets are. So there is legitimate concern. The bottom line is the speed at which it moves. if it goes slowly and smoothly, then companies can hedge.
I assume you mean USD to CAD (big, strong C!). Hey, anything is possible, but if it goes there...then exporters will adjust and slow the move. I guess it really depends on how we get there and the speed. Remember, the BoC is not a fan of fast movements and could act to stop it for a time.
I guess it depends on who's comfort we're talking about...the move of a 60%+ appreciation of the ccy in about 6 years is pretty brutal and disruptive to an economy. the best is for relatively smooth price movements...
Anyone want to talk US politics?
well it increases the costs of using canadian labor and therefore would decrease the productivity.
We have time for one last question.
It's doing well b/c of all of those reasons: stable govt. finances, stable financial system, strong exposure to oil and commodities that the world wants and exposure to the US which is currently growing (slowly, but btr than Europe!).
Andy, thanks again for your time. I know our readers really appreciate it. Is there anything you'd like to add?
I love this forum as Canadians are some of the best informed currency traders on the planet!
Glad you enjoyed it. Thanks again to everyone for their questions.