I know many commodity prices have come off sharply over the past month on the back of U$ strength, but what the heck is up with the C$ vs the Euro??
The Euro has gone from 1.3244 to 1.2434 over the month of May for a decline of 6.12%. Yet the C$ has gone from .9808 to 1.0410 for a decline of 6.14%. Pretty similar decline. Is that because the global capital markets have resumed their "correlation of one" where there are risk assets (of which the Euro and the C$ could be classified in that bucket) and then there are risk-averse assets (US Treasuries, Government of Canada bonds, JGBs, Bunds, Swiss Francs etc). Or is it the commodity sell-off story that explains the equal decline in the C$ vs the Euro?
I am not sure the cause, but the equal decline of the C$ vs the Euro just doesn't sit quite right with me. Given Government of Canada bonds are seeing very solid Flight to Quality/Safety/Liquidity, it makes no sense that the C$ decline the same amount as the Euro over the month of May. The fiscal and economic strength of Canada can surely not be compared to the Euro zone.
For thos able, I would argue to be long the C$ and short the Euro.