I'm looking into buying CAD as a hedge against USD inflation. Historically, CAD has been strongly correlated to with crude prices due to significant exports. With that said, do you think that this strategy would offer sufficient protection against USD deterioration?
The big threats that I see to such a strategy are inflation in Canada, which spiked to 1.1% in March alone, and the end of QE2 in the US. Will these 2 be enough to take the wind out of the loonie's sails?
Also, I don't have the capital to maintain any significant futures positions and know jack diddly about options. I would probably park my money in a Canadian bank account so I am not getting royally screwed by a forex desk. I appreciate the feedback.
Unless you think other Inflation Trades are rich I don't understand why you'd be long anything Canadian other than a sick weekend trip in Montreal.
Convention is USDCAD, but anyway keep in mind that high inflation in the US could also signal the need to hike rates quicker than currently expected. Just open an account at a forex broker if you want to punt spot.
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