AUSTRALIA AND CANADA USUALLY BENEFIT FROM RISING COMMODITIES -- THE CANADIAN CASH MARKET IS NEAR A RECORD HIGH -- A WEAK CANADIAN DOLLAR IS CAUSING THE EWC TO LAG BEHIND THE CASH MARKET

CANADA SHARES NEAR OLD HIGH... My earlier Market Message dealing with emerging markets showed two commodity producers -- Brazil and Russia- acting as global leaders (thanks to rising commodities). Two developed countries that also benefit from rising commodities are Australia and Canada. Chart 1 shows the Toronto Index (TSE) nearing a record high in today's trading. The TSE/ EFA ratio (bottom of chart) shows that Canada is also a global leader. Canada's trend is closely tied to rising commodities. Chart 2, however, shows the Canada iShares (EWC) are lagging behind the cash market. That's because of the green line which is the Canadian Dollar. A flat Canadian Dollar is causing Canada iShares to lag behind the TSE. That's because the TSE is quoted in its local currency while the EWC is quoted in U.S. dollars. When the Canadian Dollar is weaker than the U.S. Dollar (which it's been since November), Canadian cash shares will rise faster than the iShares.

Chart 1

Chart 2

AUSSIE DOLLAR HELPS ISHARES ... The situation is Australia is opposite to that of Canada. The Australia iShares are rising much faster than the cash market. Chart 3 shows Australian iShares (EWA) trading today at a new five-month high and well above its 200-day moving average. The EWA/ EFA ratio below the chart is rising as well. That means that Australian iShares are among the strongest in the world. The reason for their stronger performance is the strong Australian Dollar (green line) which is nearing a new high against the U.S. Dollar. Since the EWA is quoted in a weaker U.S. dollar, it will rise faster than the Aussie stock market (which is quoted in a stronger Aussie Dollar). The bottom line is this. Australia and Canada usually benefit from rising commodities. Canada is the stronger of the two. Those wishing to buy into Canada, however, might do better buying the cash market instead of the iShares. In Australia, the iShares appear to be the stronger play.

Chart 3