SIA Weekly: Currency Effects on Portfolio Returns

by SIACharts.com

Many IAs have been calling in lately to discuss the topic of currency and its influence on portfolio returns. Therefore, in this week's SIA Equity Leaders Weekly, we are not only going to look at the USD/Canadian dollar relationship, but also look at a relative strength comparison between the two country's broad markets.

United States Dollar/Canadian Dollar (USDCAD)

Since we last looked at USDCAD in mid January, the relationship has continued to strengthen in favor of the USD, moving up over 6% and making contact with major resistance at $1.2727. These are levels not seen in the exchange rate since 2009. Since the start of February though, the currency pair has taken a breather consolidating around the 1.24-1.27 level. If further gains take it through the mid 1.27s, the next resistance is found at around $1.30, which were the highs back in 2008 & 2009; past that we're into 2004 levels.

As most of you are aware, this relentless strength has also continued to place pressure on Commodities, especially Crude Oil, and as a result on the Canadian markets as well.

Click on Image to Enlarge

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S&P 500 Index (SPX.I) vs. S&P/TSX Composite Index (TSX.I)

Looking at our next chart, you can see how we have used our charting software to create a relative strength comparison chart between the US and Canadian broad equity markets. The S&P 500 Index is the numerator for calculation purposes and the S&P/TSX Composite Index the denominator. You can see from the chart that during an overall uptrend as seen since 2012, that the SPX.I is outperforming on a relative basis over the TSX.I. And the downtrend from 2009 to 2012 represents outperformance for the TSX.I over the SPX.I

Many of you probably already noticed that this multi-year relative outperformance of the US broad stock market, lines up almost perfectly with our Asset Class rankings since 2012. The opposite was true from May of 2009 until late 2011 when Canadian equities ranked well above its US counterpart.

The correlation between the strength of the US Dollar (vs. CAD) and the broad US stock market (vs. TSX.I) is obvious; they move hand in hand. Their strong correlation should continue, but at some point, possibly years away, the direction will change; all we can do is wait ... and then adapt to the changing environment.

Any questions or to learn more about these comparison charts, please call or email us at 1-877-668-1332 or siateam@siacharts.com.

Click on Image to Enlarge

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SIACharts.com specifically represents that it does not give investment advice or advocate the purchase or sale of any security or investment. None of the information contained in this website or document constitutes an offer to sell or the solicitation of an offer to buy any security or other investment or an offer to provide investment services of any kind. Neither SIACharts.com (FundCharts Inc.) nor its third party content providers shall be liable for any errors, inaccuracies or delays in content, or for any actions taken in reliance thereon.

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