CANADIAN DOLLAR HITS TWO-YEAR HIGH -- WHILE CANADIAN ISHARES HIT NEW RECORD -- RISING CURRENCY FAVORS CANADA ISHARES
CANADIAN DOLLAR HITS TWO-YEAR HIGH...With the U.S. dollar falling to the lowest level in more than two years, foreign currencies are rising. One of them is the Canadian Dollar. The weekly bars in Chart 1 show the $CDW rising to the highest level in two years. Since Canada is a big exporter of commodities, its currency gets an added boost by this year's rebound in commodity prices, and oil in particular. The rise in the currency is also giving an added boost to Canada iShares which have hit a new record. While the Toronto Stock Exchange Index hasn't.
CANADA ISHARES ARE RISING FASTER THAN TSX...The weekly bars in Chart 2 show the MSCI Canada iShares (EWC) hitting a new record this past week. While Chart 3 shows the Toronto Stock Exchange Index ($TSX) still trading below its January high. There's a reason why the EWC is rising faster than the TSX.
RISING CURRENCY FAVORS CANADA ISHARES... Some of my recent messages have explained that a falling dollar usually favors investment in foreign stocks, both developed and emerging. The falling dollar, however, gives an added boost to foreign stock ETFs over their local stock benchmark. That's because foreign stock ETFs are usually quoted in weaker U.S. dollars. And they tend to do better when their local currency is rising. Like in Canada.
The red line in Chart 4 plots a ratio of Canada iShares (EWC) divided by the Toronto Stock Exchange Index ($TSX) over the last year (EWC:$TSX). The green bars plot the trend of the Canadian Dollar ($CDW). It's hard to tell the two apart since they're both rising together. And that's the point of the chart. The EWC is quoted in a weaker U.S. dollar, while the TSX is quoted in a stronger Canadian Dollar. As a result, the EWC is rising faster than the TSX which produces a higher EWC/TSX ratio. That will cause the EWC/TSX ratio to rise along with the local Canadian Dollar. The same is true for other foreign stock ETFs which are benefiting from rising local currencies and a falling U.S. dollar.
