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Trading Positions Indicating a Potential Recovery in the Canadian Dollar?

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There has been much anecdotal evidence in the last couple of months suggesting that the global hedge fund and investment management community is bearish on the Canadian Dollar.  At the same time, every week, the Commodity Futures Trading Commission in the US releases the total number of long and short contracts on the Canadian Dollar held by futures traders.  This data is generally a good proxy for the position of the investment community on the Canadian Dollar and has been showing a notable net negative position since late March of this year.  For a variety of reasons, this “net position” data also tends to correlate well to the value of the currency itself over reasonable time periods.  The graph below shows that correspondence; the white line is the net number of long vs short futures contracts outstanding on the Canadian Dollar.  The orange line is the value of the Canadian Dollar.

Here is the interesting part: whereas in March…

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Maclean’s Article on PPP and the Canadian Dollar

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Mike Moffat argues in an interesting Mclean’s magazine article that the Canadian Dollar is not necessarily overpriced simply because it is trading roughly 20% over prices implied by PPP. Mike argues that transactions costs and the indeterminacy of market prices make PPP irrelevant as a measure of the value of a currency and points out that the Loonie has been trading well above values implied by PPP for almost all of the last decade.

The article is thoughtful but we think it misses an important concept by focusing exclusively on …

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