CAD-MXN Opportunity

The Canadian dollar has under-performed this month. Among the G10 currencies, only sterling (+2.2%) and the yen (+1%) have done worse than the Loonie, which is up about 2.4% against the greenback. In the current environment, with the prospects of QEII in the US, Canada seems markedly better positioned. Since Bernanke's Jackson Hole speech the Canadian dollar has strengthened but since mid-month, a range trading environment has emerged in the broad CAD1.02-CAD1.04 band.

Technically, a break of CAD1.02 could set the greenback for a test on parity.

The Mexican peso has been on a tear. This month it is up 5%, roughly twice the advance of the much-loved Brazilian real (~2.6%). Demand for the peso is seen linked to the inclusion of Mexican bonds in a industry benchmark bond index. It was announced many weeks ago and is to be effective as of the beginning of Oct. The MXN12.40 level that has been approached is the low end of the 4-5 month trading range for the US dollar. Those bond related flows are likely nearly complete.

The Canadian dollar has lost about 4.3% against the peso since Sept 9 higher for the year was recorded near MXN12.63. It dipped below MXN12.09 yesterday and earlier today. I appears to be trying to bottom. Like minded traders may want to consider long CAD short MXN positions near current levels. The initial objective would be the MXN12.30-12.35 area. Stops ideally would be tightly below MXN12.0.