Why to short the Canadian Dollar

Discussion in 'Economics' started by scriabinop23, Nov 3, 2007.

  1. Canadian dollar value has everything to do with oil price. Oil export price dictates the value of CAD GDP and economic success. The fundamentals you mention have really much less to do with money flow. As evidenced during last year's oil selloff, CAD plunged to .82 despite the great fundamentals you mention.

    Don't get me started on the accelerating pollution levels in Canada due to the inefficient and very difficult to scale oil sands business. 2.6 mil barrels/day of crude production (total) contributes alone 1B annually to Canadian GDP (on production/revenues received) for each dollar crude goes up. Similarly, a cut of 1B to GDP for a drop. Just by a quick view there, crude price entirely dictates whether Canada is a state of trade surplus of deficit.

    A correction in oil and decreased American exports [which will result from less attractive pricing by Canada due to currency valuation] will pressure the surplus quickly.


    All growth in Canadian oil production is entirely dependent on increased natural gas well production, as oil sands depend on natural gas to boil water/steam to make the oil products. Additionally, models to Canadian oil sand profitability depend upon natural gas price staying where it is. As it is now, 1 barrel of crude contains the energy of 6MCF of natural gas. However, the price is ratio is nearly double. In otherwords, natural gas is priced twice as cheap as crude oil for energy content.

    Basically this means what has shown to be historically nonscalable natural gas production realized at current price discounts (half off) is necessary to support the key grower of Canada's GDP. Would you bet the future of your country on that?

    IF crude doesn't collapse, natural gas price WILL come to parity with crude on demand from ramped up oil production and a general trend of energy users (ie autos) starting to find natty more attractive. You'll start to see more natural gas cars -and- pressurized natural gas fueling stations pop up quickly. Give it 9 months, as a season of retail gasoline at $4.00-$5.00 in the US [which will happen if crude doesn't collapse] will quickly stimulate change.


    Two other interesting points (long and short term): Copper demand and price coming down is an interesting possible canary in the mine, further illustrating that perhaps we are peaking here (in the short term) in the China boom. That has everything to do with real long term oil demand. Second, a friend did an analysis of both CAD and crude, and showed in the last 30 years or so, they have never (or rarely) been this far from the 200dma. In past instances of lesser runoffs in price, there was usually a several week quick reversion that occured.

    Having a strong currency is not easy on their exports either, as the US is their largest trade partner. Realize this.

    Wearing flags on backpacks is no way to value a currency.
    #11     Nov 3, 2007
  2. plugger


    Nice additional comments.

    You have certainly provided some good information on the bear side.

    I'm indifferent as to which way it goes, only out to make a buck. For now, it seems we might be in a speculative blow off top which could take the Cdn dollar to 1.10.

    Who knows? I certainly don't. Just hoping to catch a move.
    #12     Nov 3, 2007
  3. MER sell signal came on 10/15 at 73.60
    C sell signal came on 10/15 at 46.24

    Last CD buy signal came on 8/23 at 9491
    BIDU buy signal came on 10/26 at 353.39

    "Here" is not the way.

    The short answer is yes, yes, and yes, yes.

    #13     Nov 3, 2007
  4. whats your method of determining buys and sells?
    #14     Nov 3, 2007
  5. I live in Canada, border town.

    I'll leave 2 comments.

    View the attached image - S&P 500 versus CAD since 2001.

    Supposedly 20,000 of those jobs created were bureaucrat type jobs ( GOV'T) according to today's Toronto Star.

    Gas was 78 Cents Canadian a litre in Niagara Falls, NY at Sunoco last week.

    It's about 99 Cents Canadian as of today I believe in Niagara Falls, Canada.

    The high dollar is killing all types of manufacturing jobs in Ontario, but it may not be felt for another 12 months.

    I wouldn't hesitate to participate in a short term short of the Canadian dollar however, I am biased against the USD over the next 5-10 years.
    #15     Nov 3, 2007
  6. CAD is not driven by manufactoring, it's driven by natural resources. And unlike America, BoC is not printing money like there is no tomorrow.

    USD/CAD comparison is misleading.

    Look at a minor cross such as EUR/CAD to get a sense at how the current is doing.
    #16     Nov 3, 2007
  7. Is there any actual PROOF...
    That this acts as a contrarian indicator...
    Or do people just assume these things.

    Since a smart high school student...
    Could prove or disprove your assertion in about 2 hours...
    It's hard to see how this could be of any value either way.
    #17     Nov 3, 2007
  8. [​IMG]

    Hopycrap, that's a textbook head and sholders. The currency may be ready for a huge tear.
    #18     Nov 3, 2007
  9. Poole


    FACT: canada sends 82% of its exports to the USA

    FACT: all the medium to large canadian companies, have limited their near team exchange rate exposure through swaps and other methods, also contracts typically extend out months to years.

    so there will be a lag before the new exchange rates really start to bite.

    and oh yes, they will bite! it's not like canada has anything the USA really needs (besides oil - and how many people in canada make money directly from oil?). companies and people in USA will simple get their stuff elsewhere, mostly from the USA itself.
    In addition, US business will start stealing canadian work and jobs, and US exporters will make inroads into canada.

    if the canadian dollar hangs around here or gets stronger, canada is going to get hit HARD, very hard.

    short CAD long term is a great trade.

    when the usa subprime blows over and usa leaves iraq (probably both in 2009 or 2010) the dollar is going to come back with a vengence.

    I also wouldn't be surprised if china suffers some sort of implosion then too, which again would be hugely dollar positive.
    #19     Nov 3, 2007
  10. Poole


    any forex position reports you see, you should just ignore

    the forex market is so fractured, fragmented, and off the books, large, and unregulated, that these types of report are laughable.

    and even if you wanted to analyze this report, its still laughable.
    78% of traders are long - and that means what?
    whose to say that the actual dollar value of the 22% are short is a 50X a larger position than the 78% who are long?
    #20     Nov 3, 2007