If something can't rally on good news...
The Canadian dollar is the best G10 currency performer this year but that needs some perspective. It's up about 3% year-to-date against the US dollar. In Q4 alone it fell more than 6%.
More importantly, just about everything has gone right for Canada to start the year. Oil prices are up 40%, the huge WCS differential is done and economic data here has been one of the very few bright spots globally. Citi has a nice index of economic data. It measures how countries are performing relative to expectations. Canada is far ahead of anywhere else. The jobs numbers, retail sales numbers and growth numbers have all been upside surprises. At the same time, US numbers have been dismal. Normally, you would get a much bigger rally than 3% on that kind of backdrop. The rule of thumb is that if something can't rally on good news, then it won't rally at all. And that there is a good chance it's heading lower.
The market is deeply skeptical that these good numbers will last and that's justified. We're coming off the best six-month stretch of job growth in 16 years and there's just no way that's reflective of the current economy.
