Canadian Dollar Protection

[errolanderson]

Selloff in loonie recently is great news for Cdn export competiveness. For cattle feeders wishing to guard the weakness in the loonie, here's an update on June call options.

June 76 1/2 cent calls trading around 1.25 cents or $1,250 U.S. per $100,000 Cdn dollar contract.
June 77 cent call trading around 1 cent or $1,000 U.S.
June 77 1/2 cent call trading around 8/10ths or $800 U.S.

Should the loonie continue to drop, improved strike prices will be available to currency hedgers.

Should the loonie recover this spring, these (near-the-money) strike prices would perform well covering potential currency-related losses in the cash cattle market.

[errolanderson]

This is an update on the values of these Cdn dollar call options as of April 18th.

June 76 1/2 cent call now worth 3.30 cents or $3,300 U.S.
June 77 cent call now worth 2.80 cents or $2,800 U.S.
June 77 1/2 cent call worth 2.40 cents or $2,400 U.S.

Cdn dollar contract size = $100,000

Bank of Canada is not expected to announce a rate hike today.

[smcgrath76]

This is quite interesting to me. I am not sure exactly if the fed can raise rates in Canada with the pending poor performance of the oil business. My thought process is that I don't see a pipeline being built as I am sure the legal stalling will last past the end of May and this message will drive down the investment in Cdn oil and should restrict the Cdn Petro$. We have used oil prices as a close proxy for the value of the $ over the last several years to get a bit of lead time in our marketing decisions (1 day +). There is also the very real risk that this could be 1981 and ensuing years as we move forward. How do you protect yourself far enough ahead (short of locking in borrowing rates). The flip side of a weak $ and higher prices is also higher input costs.

[errolanderson]

This is quite interesting to me. I am not sure exactly if the fed can raise rates in Canada with the pending poor performance of the oil business. My thought process is that I don't see a pipeline being built as I am sure the legal stalling will last past the end of May and this message will drive down the investment in Cdn oil and should restrict the Cdn Petro$. We have used oil prices as a close proxy for the value of the $ over the last several years to get a bit of lead time in our marketing decisions (1 day +). There is also the very real risk that this could be 1981 and ensuing years as we move forward. How do you protect yourself far enough ahead (short of locking in borrowing rates). The flip side of a weak $ and higher prices is also higher input costs.

smc . . . in my view, there is little chance of any Bank of Canada rate hike in the foreseeable future.

Poor performance in the oil industry, a Cdn economy stimulated almost entirely on government deficit spending plus upside-down mortgages sprouting in the GTA (Toronto) suggest rate hikes are simply out-of-the-question. The loonie is taking a hit today because of more 'ho-hum' Cdn economic data.

If Canada enters a severe recession in 2019, there might be a BOC and a even a U.S. Federal Reserve rate cut. But media, gov't and politicians scoff as this suggestion . . . everyone knows the Great Recession is now clearly in the rearview mirror . . . . ya think?