Myth busting #2: CAD is a commodity currency!

It is downright dangerous to rely hugely on intermarket relationships -- why? .. for they can change on a whim and leave you high and dry.

If you insist on a correlation then a more appropriate one for CAD is the 2-yr Canadian bond and then the Toronto stock Index.

See CAD and Oil chart with long history. Crude Oil in lower window has not been updated to 2006, but you know that it topped out at $70.85.

What's gotten the Media into this commodity currency misnomer is the fact that CAD and Crude have gone together since 2001.

But what about before that?

Crude's been in an uptrend for at least 65 years whereas CAD has been in a downtrend for 30 of those years.

How can a downtrend and an uptrend be positively correlated?

Furthermore observe that from Jan '99 -- Nov '00 Crude shot up almost vertically; a giant move it was -- and what did CAD do? She just responded with a feeble move to the upside that didn't even go the extent of Crude's move.

Tha above is my work, but look for confirmation of this in the February 2006 CurrencyTrader Magazine article on CAD.


excerpt:

Canada is an important exporter of commodities such as crude oil, natural
gas, nickel, copper, and lumber, but none of these correlations are anywhere
near as high as for two-year notes or the SP-TSX index. It would be
just as fair given this data to call the CAD a “note currency” or a stockcurrency as it would be to label it a “commodity currency.”

There is however a sidedoor relationship with the CRB index.

The next dopey fundo analyst deserves a swift kick in the 2-moon junction.