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Don’t Expect Much From This Currency ETF in 2020

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The Invesco CurrencyShares Canadian Dollar (NYSEArca: FXC) enjoyed a solid 2019, gaining about 5%, which qualifies as an impressive performance for a currency-based ETF. That confirms the Canadian dollar was on 2019’s best-performing major currencies.

However, investors ought to be careful if they’re wagering on a repeat showing by the loonie 2020. Canadian assets have gotten a lift this year from news of a new trade agreement between that country, the U.S. and Mexico.

The U.S. could announce an agreement to scrap the duties as soon as Friday, the sources said. Although it is still uncertain as to whether the U.S. will instill import quotas or other measures in place as part of the deal to remove tariffs. The move would lift the 25% steel and 10% aluminum tariffs the U.S. planted on the two trading partners almost a year ago, for supposed matters of national security. The decision generated retaliatory duties from Canada and Mexico on U.S. farming goods and a variety of other products, and left a cloud over NAFTA, creating fears that lawmakers in all three nations wouldn’t be able to ratify the deal.

Still, some market observers expect the loonie to struggle in 2020.

“That’s the message from the global head of foreign-exchange strategy at Credit Suisse who expects the tailwinds seen in 2019 to fade,” reports Bloomberg. “While risk-sensitive currencies like the loonie should perform well if the global economy continues to firm, Shahab Jalinoos believes Bank of Canada policymakers will be quick to try to curtail a significant rise.”

Lower Loonie

Higher oil prices and those for other commodities supported the loonie in 2019, but it is believed the Bank of Canada (BOC) will attempt to force the currency lower in the new year.

“The Canadian dollar is on pace to be the best-performing major currency in 2019, notching an almost 5% gain against the greenback in a year that saw foreign-exchange volatility sink to record lows,” according to Bloomberg. “Resurgent commodity prices helped buoy the currency, as did a central bank that kept borrowing costs steady, making it an outlier in the global easing trend.”

A sluggish Canadian economy could also hamper the loonie in 2020.

“Domestic data since the Bank of Canada’s last rate decision of the year has been weak, with gross domestic product shrinking for the first time in eight months and the nation suffering its biggest jobs loss since 2009,” according to Bloomberg.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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