CurrencyShares Canadian Dollar Trust (FXC): Is the Loonie Really Set to Fly South?

Page 1 of 2

O’ Canada!

The consensus has turned against the the Great White North as the number of hedge funds betting against the country continues to grow. But the trade is getting crowded and recent economic data should cause the bears to reconsider their thesis.

The great white short

The bear thesis against Canada is pretty simple.

  1. Slowing growth in emerging markets will put a drag on commodity prices
  2. The over-indebted Canadian consumer is finally tapped out
  3. Frothy real estate prices are due for a correction

And there are lots of big names betting against the Loonie and by proxy the CurrencyShares Canadian Dollar Trust (NYSEARCA:FXC).

Vijai Mohan, founder and portfolio manager at Hyphen Fund Management, recently announced he’s all-in against Canada betting 95% of his portfolio against the Canadian dollar and the nation’s banks.

Marc Faber, editor of The Gloom, Boom and Doom Reportpredicts that Canadian real estate is in bubble territory while household debt is too high.

Steven Eisman, famous for betting against the U.S. housing market, has issued similar warnings against the Canadian real estate market.

The problem with so many high profile names betting against Canada, the trade is starting to look crowded.

According to the U.S. Commodity Futures Trading Commission, bearish bets against the Canadian dollar exceeded 76,000 contracts in April making the loonie the most shorted currency behind the Japanese Yen.

The last time short interest was this high against the Canadian dollar was in July 2007. The result – a massive short squeeze that sent the loonie up 7% over the next three months.

With so many speculators betting against the country, problems have likely already been priced in so that the market could be due for an upside surprise.

Holes in the bear thesis

In addition, the recent economic data is starting to poke holes in the bear thesis.

Two weeks ago, Statistics Canada reported 95,000 jobs were created in May. This was the best number in 37 years and reduced the unemployment rate to 7.1%.

No apparent signs of a slow down in real estate. Last week, the Canadian Mortgage and Housing Corporation reported 200,000 housing starts in May, up from 176,000 in April. This blew past analysts expectations in spite of tighter lending rules passed by the Federal government.

Both of these economic reports suggest economic growth is picking up after a soft 2012 and a Bank of Canada interest rate hike could be back on the table. That would be a catalyst for a higher loonie.

Canada’s equity markets also look attractive.

The iShares MSCI Canada Index (ETF) (NYSEARCA:EWC) remains 16% below its 2008 peak. The index has under-performed the S&P 500 by 15% over the past year.

Most of this decline can be credited to weak commodity stocks which make up half of the index. Materials and energy stocks are down 45% and 22% respectively since 2011.

But a few catalysts could send those shares higher.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!