Loonie Bears Triple Bets

The Canadian dollar’s 22% surge against the U.S. currency has become such a threat to the economy that central bankers and chief financial officers are encouraging the loonie to weaken.

“One of the risks to the Canadian economy is persistent strength to the Canadian dollar,” Bank of Canada Governor Mark Carney, 45, said in a Bloomberg Television interview at the World Economic Forum’s annual meeting in Davos, Switzerland, on Jan. 28. “We have a competitiveness problem in Canada.”

The loonie, nicknamed for the waterfowl’s image on the C$1 coin, is hampering exports and has caused Canada’s current- account deficit — the broadest measure of trade — to widen to a record C$17.5 billion ($17.5 billion) in the third quarter of 2010, Statistics Canada said Nov. 29. Exports accounted for about 32 percent of gross domestic product in 2009, according to government figures.

Trader demand for financial contracts insuring against depreciation in the currency has more than tripled since Oct. 14, signaling investors are wary the Canadian dollar may weaken. The loonie rose 0.5 percent in the period, appreciating through parity every day this month for the first time since November 2007, and strengthening 0.2 percent to 99.93 cents per U.S. dollar at 7:03 a.m. in New York.

Bloomberg

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell