Traditionally the Canadian dollar has tracked global demand for the nation’s rocks and trees.
As shown in the chart below, the connection between Canadian exports and the strength of its currency historically reflected in a correlation between Canadian resource-based venture companies (CDNX Index) and the loonie. In 2011 as central banks went full nut-job with herculean promises of monetary power, the resource sector remained unconvinced and followed global manufacturing output lower, while the C$ weakened to a lesser extent.
Over the past couple of months, the loonie has rejoined the resource sector’s trajectory but with a glaring gap now evident between the two. This morning wildly volatile, the Canadian dollar index has now broken below cyclical support that had held out of the 2009 recovery. Further downside to at least the last recession bottom in the .80 range seems probable, with further declines possible into the .70’s after that.