The Canadian dollar continues to decline against the USD. I’ve noted many times before that I am bearish on the loonie, having posted an accurate prediction that we would see a decline in our currency over the summer here.
I’ve also posted the backdrop behind my weak outlook for the loonie. On this blog, I noted why I remain bearish on the CDN economy, and bullish on the US. Say what you will about Trump’s abrasive personality, social policies, etc, etc. He is doing what is best for the USA’s economy – and he’s done a good job so far. “Facts is facts”. Love him or hate him – Those who invest against the trend on the US markets and currency have, and will likely to continue to have, underperforming portfolios. Putting our money where our mouth(s) are, at ValueTrend we moved more into the US side of our stock holdings after the market pulled back in February, and so far we are happy to have done so.
When it comes to the NAFTA, some feel that Canada has sent an inexperienced boy with a penknife to fight a fully armed gunslinger. I tend to agree.
Ian Lee, Associate Professor at the Sprott School of Business is concerned as seen on this video. He is not alone in his concern. TD Bank suggests that – if the NAFTA deal fails, Canada will lose 160,000 jobs. BNS reports it will shrink Canada’s GDP by a full percentage point.
Upside? Given the depressing outlook for Canada’s growth, perhaps marijuana will be more in demand by Canadians to ease the pain of their job losses and lousy stock returns, making the cannabis stocks attractive. But I digress….
I guess I sound like a scrooge so near to Canada day, but it’s not my job to help you feel good. My job is to trade the least risky scenario according to probability, and I attempt to pass on some of that strategy on to you. Below, I might be able to offer some hope for those looking to convert some money into USD’s.
Momentary reprieve may be coming for the loonie
Despite all of this doom and gloom over Canada’s outlook, at this moment, the loonie appears ready to bounce. It’s at the bottom of its downward trading channel, as you can see in the chart below. Its oversold, and likely to see a move back into the trend channel in the near-term. A move to $0.78 would likely inspire me to load up on more USD’s.
The USD, vs. the world basket of currencies is bullish on the monthly chart – having bounced off of a rising trendline (black) and found support again back above 92.
However, on the weekly chart, you can see it’s a bit overbought (RSI, stochastics hooking down).
Seasonal trends are a bit soft over the summer for the USD, so it might be the to the loonies benefit given the oversold CD and overbought USD. Note the Equityclock seasonal chart. The USD can be weak from now until October. From there, it can rally – hard. The real strength usually occurs over the late winter –but there are seasonal tendencies now that confirm my neartermed call for a bounce on the loonie. That might be good news to some of you who need to do some conversion soon.
Speaking of EquityClock…
EquityClock now offers an enhanced subscription service
I am sure you are aware that I use Equityclock charts frequently in my stock and broad market analysis. Jon Vialoux (founder of Equityclock) has enhanced his service to offer more tools than in the past – and access to his massive database of seasonal charts. I am not affiliated with Jon, and don’t get kickbacks for telling you about his service. But I do like the service so much, that I asked him to provide me with a description of the subscription for my readers. Here it is—directly from an email I got from Jon*:
“In a nutshell, the subscription offers access to the seasonal chart database at Charts.EquityClock.com. I’ve put the database behind a “leaky paywall” similar to how newspapers offer their content to users. Visitors to the site have a limited number of seasonal profiles they can view for free, then would be required to subscribe to continue to access the data.
Users can subscribe to either the monthly or yearly option to receive unlimited access to the over 7000 seasonal profiles that are contained in the database. Also included with the subscription is a monthly commentary highlighting the various tendencies for the month ahead. And that’s not all..yearly subscribers are able to download the seasonal data included in the database to a spreadsheet such that they can perform their own custom filters or queries based on a number of factors. This had been a frequent request amongst visitors such that they could download the data into their own systems.”
*Link to Charts.EquityClock.com and their tools and services is provided as an additional resource and is for information and convenience purposes only. This website is owned and operated by a third party and is not associated with ValueTrend Wealth Management and Worldsource Securities Inc. By accessing this link you will be leaving our website. Although we use Equityclock charts frequently the inclusion of their website in this blog and references to these third party services should not be regarded as an endorsement of the linked website, the third parties named therein or their products and services. Access to this website is still at your own risk and we have no control over the contents of this linked website and are not responsible for the availability, accuracy or reliability of the linked website or any other link contained in this linked website.
4 Comments
I would like to add that speculation abounds about Canada’s interest rate…will he or won’t he. I don’t want an interest rate hike, just as many Canadians don’t. But if Poloz holds the line, it is a strong indication that Canada is in trouble and just the fact that there is a debate about a possible interest rate increase is worrisome . Our dollar is not competitive at these rates and can’t increase in value.
Excellent blog, Keith and I enjoyed the video with Ian Lee (even though Mr. Levant is sometimes over the top). And I liked your quote,”When it comes to the NAFTA, some feel that Canada has sent an inexperienced boy with a penknife to fight a fully armed gunslinger.” Can I use it?
Yes Fred– you can use it. BTW–happily read that Harper went solo and talked to the US trade folks. They need to hear from a intelligent and experienced minister who has an economic background and knows how to negotiate.
Keith – I read your blog religiously as I have found you to be one of the most accurate experts in investments. You were right about YANG – it rallied from the bottom of the channel ~$43 when you called it to ~$63 now. You were also right about XLU – it’s also up. Now I will trust you that the USD is also going up longer term despite many other so called experts saying the USD is long term bearish. How high do you think the USD will go and within what timeframe? If you think others have an interest, I would love your take via an article on the big upcoming sector opportunities in Jul/Aug. For example, it seems natural gas usually faces headwinds the next few months while gold/miners typically bounce. Thanks so much once again for all that you do.
Thanks Rachel–I’ll keep your idea in mind for a blog
As far as the USD–after a brief pause in its current strength, I would be surprised if the USD vs C$ doesn’t strengthen to the point of the C$ eventually hitting the low $0.70’s