Why the Canadian Dollar Is Slipping On Oil
There's a good reason the Canadian dollar is grouped with the other commodity-linked currencies: Canada has significant stores of oil, so the currency often moves in tandem with oil prices.
Just not this time.
While crude oil prices have risen six percent since the beginning of the year, the Canadian dollar has actually weakened slightly.
Kathy Lien, a managing director at BK Asset Management, says there's a good reason for the unusual divergence.
"The price of oil coming out of Canada is not rising as fast as the price of Brent, which people usually watch," she says. "Brent is rising to 10-month highs and the Western Canadian Select, the oil coming out of Canada, is only at a three-month high. That is leading to zero benefit for Canada and is really the confusion right now" for investors.
OIl prices are not the only reason to bearish on the Canadian dollar right now, LIen told CNBC's Melissa Lee.
"I think this divergence will end up hurting Canadian oil producers as well as the outlook for Canada, and actually make the Bank of Canada grow even more dovish," she says. "That could raise some more concerns about the outlook for the Canadian economy."
So Lien wants to buy the dollar against the Canadian dollar, entering the trade on a dip to 0.9925 and setting a stop at 0.9825. She is looking for a move to 1.0100.
Todd Gordon, founder of TradingAnalysis.com, likes the trade. Technical indicators suggest that "we could have another couple of months of divergence to go," he says.
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