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Loonie Tunes!
By Mike Conlon | October 12, 2009
In a continuation of the move that started last week in the Canadian dollar (CAD), this morning it’s the top performer (USD/CAD -.81%), (CAD/JPY +1.24%). A report out of RBC Capital markets advised clients to sell the US dollar and buy the Loonie as the analyst is forecasting that the Canadian government will raise rates sooner and more aggressively than the US.
Considering the unemployment figures they reported last week, this makes sense. However, I still have a concern about whether or not the Fed is going to be forced to take action with regard to it’s ahem “strong dollar policy”- that is the debasement of USD. Should Central Banks start dumping dollars, this could set off a nasty chain of events.
Obama is the “populist” President (see winning Nobel Peace Prize); I wonder at what point he will have to change tactics to prevent a total US dollar collapse.
While this appears to be “the trade”, when everyone and their brother screams sell dollars my natural contrarian disposition is to do the opposite. However, I don’t want to fight the trend (which is clearly down for USD) but I will be keeping close watch for the first signs of a reversal.
So my short-term outlook is dollar negative, but my longer-term thesis is that I’m looking for buying opportunities and signs that Fed may have to step in to support the dollar. Something’s gotta give here, I just hope its not support that send the dollar into free-fall!
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