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Posthaste: Why loonie lovers should beware of Fridays (and Thursdays for that matter)

Financial Post logo Financial Post 2022-05-10 Pamela Heaven
After being the best performing currency against the U.S. dollar in 2021, the Canadian dollar has slipped down the charts in 2022.   © Provided by Financial Post After being the best performing currency against the U.S. dollar in 2021, the Canadian dollar has slipped down the charts in 2022. a close up of a sign

Good Morning!

The loonie has been having a tough year.

After being the best performing currency against the U.S. dollar in 2021, it has slipped down the charts in 2022.

Today the Canadian dollar was trading at 77.02 US cents, a low not seen since November 2020. Speculators have slashed their bullish bets for the currency. As of last week, net long positions had fallen to 9,029 contracts from 20,881 the week before, Reuters reports.

A lot of it has to do with a very strong U.S. dollar, and in a fascinating note Bank of America strategists explain why this year Fridays and Thursdays are the worst days of the week for Canada’s currency.

Unlike the loonie, the U.S. dollar, which tends to be seen as a safe haven in uncertain times, has been having a great year. Energy and commodities are the only major asset classes in the U.S. to outperform it, say BofA strategists Howard Du and Vadim Iaralov.

The greenback has rallied about 8% against other G10 currencies, and Du and Iaralov found that most of those gains in 2022 were made on Thursdays and Fridays, with cumulative returns of 1.9% and 2.2%, respectively.

These also happen to be the days that U.S. stock markets saw their biggest selloffs, racking up cumulative losses of -10.6% on Thursdays and -7.9% on Fridays.

“In our view, investors are more reluctant to hold risky assets over the weekend due to (1) the on-going war in Europe, (2) the withdrawal of central bank liquidity increasing “price gap” risks, which supports demand for the USD,” said the strategists.

Wednesdays tend to be weaker days for the greenback, especially Fed Wednesdays. The strategists think this is because investors buy the USD ahead of what are expected to be hawkish FOMC meetings, “sell the fact” on the day and then buy in again as uncertainty remains high.

Stock markets tend to have their best days on Monday afternoons, after the selloff on the previous Thursday and Friday.

So how does all this affect the loonie?

The strategists say that across major G10 and emerging market currencies in 2022, the Canadian and Australian dollar have the closest relationship to U.S. equity markets.

“These two currencies have also had the greatest loss against the USD on Thursdays and Fridays, coinciding with the bearish day-of-week seasonality for the U.S. equity market,” they said.

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The cumulative losses year to date for the Canadian dollar were -1.2% and -2.5% on Thursdays and Fridays, and BofA says there is risk of more losses in equity routs to come.

Scotiabank chief FX strategist Shaun Osborne in a note Friday also said the Canadian dollar “has one of the strongest, positive correlations with U.S. equities among the major currencies at the moment … which means that six consecutive weekly declines … have hampered the CAD’s performance of late.”

While Osborne and his team expect more downside risks for the Canadian dollar they think that relatively high commodity prices and a “resilient domestic economy” should limit losses for the moment.

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Shopify’s shares have plunged 22% since earnings last Thursday came in short of analyst expectations, and by Monday Tobias Lütke appears to have had enough. After being grilled by analysts on the conference call last week, the founder and CEO of Shopify had a few questions of his own. He wanted to know who was charting the track records of the men and women who judge publicly traded companies for a living and whether these analysts are being held accountable, reports the Financial Post’s Marisa Coulton . Lütke also called into question the whole premise of analyst expectations, suggesting that maybe it’s the analysts, not the companies, who are getting it wrong. Interesting.

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Video: Pandemic job losses more than made up, economist says (cbc.ca)

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Surging oil prices this year have brought back painful reminders of an earlier time when geopolitical tensions caused crude prices to soar. In 1973 OPEC stopped selling oil to the United States to punish the west for supporting Israel in the Yom Kippur war against Egypt. Between August of that year and January 1974 crude prices almost tripled, and the spike contributed to stagflation.

This time really will be different, argues the International Monetary Fund, because the world relies less on oil. Economists track oil intensity by measuring how many barrels are needed to produce $1 million in gross domestic product. As the IMF chart below shows this measure is about 3.5 times lower today than back in the scary seventies, making the world less prone to oil shocks.

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Demand for crude oil is rebounding as the global economy recovers — people are travelling and commuting again. Meanwhile, production has failed to meet that demand because producers have underinvested for nearly a decade. On top of that, sanctions on Russia have cut supply from one of the world’s largest energy exporters. Earlier this year, Goldman Sachs even called for oil prices to continue rising above US$100 in 2023.

Our content partner MoneyWise explains why these three top oil stocks will benefit from those dynamics.

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Today’s Posthaste was written by  Pamela Heaven (@pamheaven), with files from The Canadian Press, Thomson Reuters and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com , or hit reply to send us a note.

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