CurrencyShares Canadian Dollar Trust (FXC): Is the Loonie Really Set to Fly South?

First, the discount for Canadian crude is shrinking. The spread between Western Canadian Select and West Texas Intermediate hit a record $40 per barrel last winter. However, that discount narrowed to $17 per barrel this spring as railroads and pipelines begin to clear clogs in the energy supply chain.

Second, despite record short interest, Canadian banks reported strong earnings this quarter. Take Royal Bank of Canada (USA) (NYSE:RY), the nation’s largest financial institution, as an example. Last month the company announced a $1.9 billion second quarter profit up 26% driven by strong gains in trading and wealth management. Even the company’s supposedly troubled retail arm posted a impressive 12% earnings gain. After hearing for years the Canadian banks are due for a slow down, all of the negatively is looking misplaced.

Foolish bottom line

The Canadian dollar is pricing in a major recession. But a strong jobs report, solid housing numbers, and stronger commodity prices should cause the bears to revisit their short thesis.

Robert Baillieul has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Is the Loonie Really Set to Fly South? originally appeared on Fool.com.

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