June 4, 2010 – The Loonie Takes Flight On Bank of Canada Move

Featured Trades: (CANADA), (FXC), (EWC)
Canada iShares Trust ETF
Currency Shares Canadian Dollar Trust ETF

3) The Loonie Takes Flight On Bank of Canada Move. The Bank of Canada finally raised interest rates yesterday, the first G-7 country to do so, taking the overnight rate up 0.25% to 0.5%.  The central bank said it took the move to cool off a white hot real estate market, and an economy that grew 6.1% in Q1. The move sent the loonie (FXC), rocketing 5% against Uncle Buck over week ago levels. The move also sent Canadian stocks flying like a surprised covey of geese. I have been a fan of the Canadian dollar and stocks (EWC) for some time now (click here for the call), expecting that parity was just a matter of time. Canada is a huge commodity exporter, the largest foreign supplier of oil to the US (bet you thought it was OPEC), with a small, hard working, English speaking (well, almost) population. They also do banking the old fashioned way up North, with the government requiring 20% reserves that limits leverage to 5:1, versus the 100:1 seen at the peak with some of our banks. That means they missed the financial crisis, and the soul searching, angst ridden self examination and re-regulation that followed in the US. There will be more to come, with at least another decade of commodity bull markets to follow, the source of the country's lifeblood. Expect more rate rises to come, and strong Canadian currency and stocks to follow. And no, I don't know how to sing 'I'm a Lumberjack, and I'm OK,' so here is a gratuitous picture of my favorite Canadian, Pamela Anderson.