Forex Investment and Currency Trading

Equity market selloff would continue to place downward pressure on the CAD and vice versa.

• Global growth outlook posits some degree of linkage between CAD and equities.
• Except for a brief period in 2004 and 2006-2007, the CAD has often tracked moves in the
  S&P 500 Index.
• Prominent late last year, when the market focus shifted away from the CAD/commodity link
  and more toward the CAD/equity link.
• Equities viewed as a close proxy for the global economic growth outlook.

Slowdown in global growth is serving as a headwind to further CAD gains.

• USD/CAD tends to have an inverse relationship with the G7 OECD leading indicator.
• Slowdown in global growth has been accompanied by a weakening of the CAD.
• Bearish trend reversal in the leading indicator in 2008 was soon followed by a bullish trend
  reversal in USD/CAD.
• The CAD tends to benefit during periods of global expansion – and suffer during periods of
  contraction.

Collapse in crude oil prices largely driven by reduction in outlook for global growth. Both factors are negative for the CAD.

• Commodity rally provided support to the CAD through late 2007.
• However, negative correlation between USD/CAD and crude oil broke down in November 2007.
• Correlation between CAD and equities became more important from November 2007 to
  July 2008.
• Sharp correction in crude oil has brought the negative correlation with USD/CAD back into
  place.