The market is dumping dollars on QE3 expectations but it’s not the right trade, right now.

  1. First off, it’s premature. There have been several weakish data points but nothing to indicate plunging growth.
  2. There has been no hint from a core Fed member that action is coming, just the opposite.
  3. QE isn’t going to save the economy. Businesses aren’t hiring because of fears about Europe, China and the fiscal cliff. That’s what needs to be solved.
  4. Yields are at record lows. The market is doing the Fed’s work and more QE would stoke longer-term inflation fears and commodity-price inflation

A growth-sensitive, US-sensitive currency like CAD is especially at risk at the moment. The rate check and flows (possibly from the SNB) have the market confused. The story right now is economic weakness. It’s a simple trade or risk assets, no need to make it more complicated than it is.