Canadian Dollar Hits 1.30 Target

I have been very bearish the Canadian dollar for the past few weeks, calling for a move to the 1.30 level on my blog and on Canada’s Business News Network.

I am in Chicago for the day so I won’t be blogging much.

As promised, the break of 1.30 was fierce with USD/CAD racing to a high of 1.30669. A number of stops were sitting at or above the 1.30 level, so when that price point was reached, the currency pair ran quickly higher. On an intraday basis, the Canadian dollar has fallen to the lowest level against the US dollar since 2004.

There is alot to be worried about when it comes to the Canadian economy. Employment numbers are due on Friday and I think they will be weak.

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15 Comments

  1. Thanks Kathy,have not finish reading your book yet,but for a newb to this FX stuff I’m doing really good so far…..but the best part is my so called advisor for my rsp (after selling my usa holdings 4weeks ago)wanted to change over to cad…..i told him to hold off on that for a bit…..every week he sends me an email telling me about some high mer fund i should be in….i may dump this sales man (cfp) for fx etf’s….not sure yet if i can have fx etf’s in an rsp…….KL let us know if your coming to T.O.

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  2. Hi Kathy,

    Still cannot understand these things, yes, Canada’s economy is suffering and the unemployment numbers will rise, but come on, we don’t have any problems compared to what’s going on in the U.S. Our banks are not insolvent, our housing is doing better, our unemployment numbers are lower, we don’t have as much bailouts, we have resources, gold, oil, wheat, potash, etc., so WHAT GIVES!

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  3. Hi Kathy,
    I will be interested in your response to fc as I have some questions that are more the long term outlook on currency exchange and investment. I am thinking with dollar strong, cad weak that it may be a good time to look to buy some canadian real estate. My thinking goes like this, even if the price of real estate in canada falls, it may still be less of an adjustment than the eventual fall of the usd. Then I would have the advantage of the money conversion down the road plus I do not think that real estate in canada will fall as much as the US. Do you see any big flaws in my thinking? I just need to see if I am missing something here in this picture.
    Thanks,

    MD

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  4. Currently the break didn’t hold. USD/CAD is under 1.28.
    Friday’s employment and trade balance data (also in the US) should provide a clear direction for the pair.

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  5. Thanks for posting on my forex blog. Yes, the US economy sucks, but currencies move on future expectations of how countries will perform against each other. Therefore even though the US economy will continue to deteriorate, the thought is that Canada will not be able to recover until the US economy does so first.

    The major flaw with CAD real estate is if prices in Canada see a much steeper slide, which they could.

    Dear Worried> This is a tough one. I wouldnt have went short if I were you. I have been calling for USD/CAD short for ages now.

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  6. my 2 cents on CAD for fc and md
    yes, CAD banking system is not exposed to the same extent as in the US, EZ and UK.
    However:
    76% of CAD exports are to the US,
    car parts (ooops),
    timber for homes (ooops)
    and oil (breakeven oil price for tar sands oil is north of $86/bbl- ooops)

    in addition, CAD used to be a dual surplus country (budget and current acct), and now sadly it is neither.
    Housing is NOT good in CAD, housing stats dropped 12% in Feb, lowest in 8 years.

    as for resources- yes, CAD is rich in commodities, but every commodities index shows no one is buying (Baltic Dry has shown some life).

    CAD went into recession in Q4 08, and forecasts are not good

    having said all that, risk is non zero for the $, and I would not expect a larger break to the upside for $/CAD, but rather a 1.2-1.35 range for the next 6 months.

    for md- are you talking land, commercial or residential…? very different asset classes. you can always take an option to buy RE, and wait it out. if you’re wrong on prices, you’re only out a little instead of a lot…feel free to contact me offline- I”m a commercial broker here in the US

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  7. dear Worried
    you’re only OTM 200 pips or so as of Tuesday (1700 GMT). the volatility ranges from 16% (1 week) to 18% (one year), which is one of the smaller vols for the majors.

    if you’re not highly leveraged, you should be able to wait it out. after all, the 100 day moving average and 200 dma are both well below your position, and mean reversion works over many months.

    if you are highly leveraged, you should cut the position or hedge it, as 1.4 is conceivable- it hit that in 2004.

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  8. Paul, the breakeven on oil sands(they don’t call it tar sands anymore because of the envor nut jobs) is $45 usd and housing “sales” are 12% lower then Feb last year ,but the real price drop(5%) was in “new” condo’s…..md you may want to use a local agent and lawyer….we have diff. rules up here,you can’t just walk away from a deposit as many pre cons are findout

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  9. DJ
    thanks for the update on oil sands breakeven. one does wonder why so many projects have been put on hold if its truly so low.

    md- deposits and options are two different things…I never suggested walking away from a deposit.

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  10. Ya.. i went into CAD just a day before they cut rate.. terrible … and i did not know about this blog until i got stuck in CAD.

    Thanks to Paul and yourself for the comments.

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  11. Thanks everyone for your input.
    Paul, I was thinking residential and along with the pros and cons listed, it is also the idea that in America we may have a huge burden to overcome. With two kids still in school, I am looking for ideas for long term, things that are tangible.

    Thanks again,

    MD

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  12. md

    income residential? I’ve generally steered my investment clients away from residential, either single or multi-family. in most asset classes (self storage, retail, office, warehouse, hospitality) the asset is a place of business, they take care of it, and the law is on the landlord’s side if there’s a problem. in residential, lessees tend not to care about the asset, and if there’s a problem (non payment, drugs, etc) the law’s on lessees’ side.

    Much safer is either a)credit tenants (ie “BBB” or better S&P rating), long NNN leases, located in expanding MSAs. For example, a Walgreens, CVS, or similar. b) self storage- always good in any economy, simple metal boxes that last forever. managing a NNN credit tenant from afar is done all the time, so buying in Canada should be fine, and hopefully you might also see an eventual extra return from FX (you’re buying way above PPP and GSDEER right now- both around 1.18).

    Taxation issues (both real estate and income) should be something you should research deeply.

    Look for capitalization rates that are at least 8%+, and count on financing to be harder than before- maybe 65-70% LTV, and at least 1.3 DCR (debt coverage ratio). you should see 1st Yr ROE of at least 8-9%.

    staying in real estate-backed investments, if you’re an accredited investor (ie net worth exclusive of house > $1M, or income > $200k/yr), there is now an opportunity of buying the AAA tranches of CMBS (commercial mort backed securities) that have been re-underwritten. 5 yr hold, 10% ROE

    just a few thoughts. feel free to take this offline with me @ [email protected]

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