The Canadian dollar traded near a two-month low versus the greenback after weaker-than-forecast data last week on U.S. jobs and manufacturing spurred concern the recovery of Canada’s biggest trade partner is faltering.

The loonie, as the currency is nicknamed for the image of the aquatic bird on the C$ 1 coin, declined as a report showed Canadian building permits fell in April at the fastest pace in more than five years. Crude oil, Canada’s biggest export, and stocks dropped as investors sought safer assets.

“We’ll be seeing not a great deal of action until we have some more data coming out later in the week,” said Darren Richardson, senior corporate dealer in Toronto at CanadianForex Ltd., an online foreign-exchange dealer. “The negative data in the U.S. employment figures and also some weak data in Canada show things are slowing. Both economies are seeing people moving away from high-yield, high-risk currencies.”

Canada’s currency fell for a second day, weakening 0.3 percent to 98.09 cents per U.S. dollar at 5 p.m. in Toronto. It closed at 97.78 cents on June 3, when it touched 98.52 cents, the weakest level since March 21. Earlier today it reached 98.17 cents. One Canadian dollar buys $ 1.0195.

Building permits dropped 21.1 percent in April to a seasonally adjusted C$ 5.35 billion ($ 5.45 billion), Statistics Canada said today. Crude oil for July delivery tumbled 1.4 percent to $ 98.79 a barrel in New York after slipping 0.4 percent last week, and the Standard & Poor’s 500 Index retreated 1.1 percent.

Fell Versus Peers

The loonie weakened over the past month versus all of its 16 most-traded counterparts, declining 1.4 percent against the U.S. dollar and 1.7 percent against the euro. It dropped the most today against the yen, losing 0.6 percent.

The euro touched a 15-month high today versus the loonie after European Union and International Monetary Fund officials agreed last week to pay the next installment to debt-strapped Greece under last year’s 110 billion-euro ($ 161 billion) bailout.

“We’ve seen a lot of trading activity in euro-Canada, and that’s going to continue as there’s a lot of unknowns with respect to the European debt situation,” said Blake Jespersen, director of foreign exchange at Bank of Montreal in Toronto.

The Canadian dollar fell as much as 0.4 percent to C$ 1.4371 per euro, its weakest level since March 2010, before trading at C$ 1.4299, up 0.1 percent.

Ivey Index

The currency pared losses after the Ivey purchasing managers index increased more than projected in May, rising to 65.5 on a seasonally adjusted basis, according to a statement on the University of Western Ontario business school’s website. The adjusted reading in April was 57.8, and the median estimate in a Bloomberg News survey was 55.2. Readings of more than 50 signal purchasing by governments and companies advanced.

“This morning’s Ivey PMI report suggests that the recovery in Canada could be gaining momentum,” Kathy Lien, director of foreign-exchange research at online currency trader GFT Forex in New York, wrote to clients today. “The Canadian dollar appreciated very modestly after the release because worries remain about how the Canadian economy would perform in the face of slower U.S. growth.”

Finance Minister Jim Flaherty, whose Conservative Party won a majority in last month’s election, committed in today’s 2011 budget to erase the country’s deficit during the government’s mandate while fulfilling campaign promises.

Flaherty said he’ll seek to bring the federal government back into surplus by 2014 by implementing a review of government operating costs that will save up to C$ 4 billion annually. His budget document released today, which doesn’t account for any of the operating savings, projects a return to balance in 2015.

Bonds Fall

Canada’s government bonds pared losses. The yield on the 10-year note rose less than one basis point to 2.99 percent, after increasing earlier to 3.03 percent. It fell to 2.95 percent on June 3, the lowest since November. One basis point is 0.01 percentage point. The price of the 3.25 percent security due in June 2021 decreased 3 cents to C$ 102.22.

The government will sell C$ 1.4 billion of 30-year bonds on June 8, according to a statement on the Bank of Canada’s website. The securities mature in December 2045.

The loonie fell 2.4 percent in May versus the U.S. dollar, the first monthly drop since January and the biggest since August, amid concern a weak U.S. recovery will prompt the central bank to delay interest-rate boosts. The Bank of Canada has held its key interest rate at 1 percent since September, after raising it last year from a record low 0.25 percent.

U.S. payrolls increased by 54,000 jobs in May, less than a third of the 165,000 that economists had projected, Labor Department data showed last week. An Institute for Supply Management report on June 1 showed manufacturing in the nation grew at the slowest pace in more than a year.

‘Softens for Canada’

“As the outlook softens for the U.S., it also softens for Canada,” said Camilla Sutton, chief currency strategist at Bank of Nova Scotia’s Scotia Capital unit in Toronto.

Canada ships about 75 percent of its exports to the U.S.

Employment growth in Canada slowed in May, a Statistics Canada report may show on June 10. Employers added a net 20,000 jobs after a gain of 58,300 in April, according to the median estimate in a Bloomberg survey.

“The market’s now looking to later in the week in Canada when we see our employment number,” Bank of Montreal’s Jespersen said. “The market is going to be positioning itself somewhat defensively heading into that number.”

The U.S. dollar scaled six-week peaks against the euro Friday as concerns about the global economy spurred a return to the greenback’s safety.

The flight away from risky trades in commodities, stocks, and high-yielding currencies could well be a major driver for the dollar in the week ahead as global economies struggle to get back on track.

The dollar sold off sharply this year and traders believe the currency’s rally may have further to go.

“It’s not just the dollar coming back but everybody is getting a haircut this morning,” said David Watt, senior currency strategist, at RBC Capital Markets in Toronto.

“Oil prices are down, equities off, and risk off. With the dollar being beaten so badly, a bounce makes sense.”

He also cited nervousness about the global economic recovery, adding that while Europe has positive economic numbers with its strong gross domestic product data, it doesn’t drive global growth.

One of the biggest losers on Friday was the euro, which fell across the board on track for its worst two-week performance in one year. European Central Bank President Jean-Claude Trichet did most of the damage to the euro when he said inflation was at a peak in an interview with Spanish TV, suggesting uncertainty about the pace of future rate hikes in the euro zone.

Investors also refocused on euro zone debt issues ahead of meetings by finance officials in Brussels.

A meeting of Eurogroup finance ministers, followed by an Ecofin meeting of EU finance ministers Monday, could provide further direction to the single currency and the euro is likely to remain pressured until at least after investors digest any outcome.

In early afternoon trading, the euro was 0.9 percent lower on the day at $ 1.4112, after hitting a session low at $ 1.40650 on trading platform EBS.

Over the last two weeks, the euro has declined 7.3 percent, its weakest showing since mid-May last year.

The euro, however, hit a session peak at $ 1.43 after strong first-quarter GDP data from the euro zone’s biggest economies, Germany and France, prompted demand from Asian sovereign names, European real money accounts and leveraged funds.

That bolstered expectations a healthy euro zone economy will keep interest rates higher than their U.S. equivalents. By contrast a report showed U.S. consumer prices rose as expected in April, giving little sign of a broader pick-up in inflation that would trouble the Federal Reserve.

In other currencies, weakness in commodities triggered a decline in commodity-lined currencies. The Australian dollar fell 0.9 percent to US$ 1.0578, while the New Zealand currency sank 1.1 percent to US$ 0.7866 .

Exchange-traded funds (ETFs) can be a great investment vehicle for small and large investors alike. These popular funds, which are similar to mutual funds but trade like stocks, have become a popular choice. However, there are some disadvantages that investors need to be aware of before jumping into the world of ETFs. In this article, we will look at some of the disadvantages of ETFs. Good information is an investor’s most important tool. Read on to find out what you need to know to make an informed decision.

Trading Fees
One of the biggest advantages to ETFs is that they trade like stocks. As a result, investors can buy and sell during market hours as well as put advanced orders on the purchase such as limits and stops. Conversely, a typical mutual fund purchase is made after the market closes, once the net asset value of the fund is calculated.

Every time you buy or sell a stock you pay a commission; this is also the case when it comes to buying and selling ETFs. Depending on how often you trade an ETF, trading fees can quickly add up and reduce your investment’s performance. No-load mutual funds, on the other hand, are sold without a commission or sales charge, which makes them advantageous, in this regard, compared to ETFs. It is important to be aware of trading fees when comparing an investment in ETFs to a similar investment in a mutual fund.

If you are deciding between similar ETFs and mutual funds, be aware of the different fee structures of each, including the trading fees. And remember, actively trading ETFs like stocks can severely reduce your investment performance as commissions can quickly pile up.

Underlying Fluctuations
ETFs, like mutual funds, are often lauded for the diversification that they offer to investors. However, it is important to note that just because an ETF contains more than one underlying position doesn’t mean that it can’t be affected by volatility.

The potential for large swings will mainly depend on the scope of the fund. An ETF that tracks a broad market index such as the S&P 500 is likely to be less volatile than an ETF that tracks a specific industry or sector such as an oil services ETF. Therefore, it is vital to be aware of the fund’s focus and what types of investments it includes.

In the case of international or global ETFs, the fundamentals of the country that the ETF is following are important, as is the credit worthiness of the currency in that country. Economic and social instability will also play a huge role in determining the success of any ETF that invests in a particular country or region. These factors must be kept in mind when making decisions regarding the viability of an ETF.

The rule here is to know what the ETF is tracking and understand the underlying risks associated with it.

Liquidity
The biggest factor in any ETF or stock or anything that is traded publicly is liquidity. Liquidity means that when you buy something, there is enough trading interest that you will be able to get out of it relatively quickly without moving the price.

If an ETF is thinly traded, there can be problems getting out of the investment, depending on the size of your position in relation to the average trading volume. The biggest sign of an illiquid investment is large spreads between the bid and ask. With so many new ETFs coming to market, you need to make sure that the ETF is liquid. The best way to do this is to study the spreads and the market movements over a week or month.

The rule here is to make sure that the ETF you are interested in does not have large spreads between the bid and ask prices.

Capital Gains Distributions
In some cases, an ETF will distribute capital gains to shareholders. This is not always desirable for ETF holders, as shareholders are responsible to pay the capital gains tax. It is usually better that the fund retains the capital gains and invests them, rather than distributing them and creating a tax liability for the investor. Investors will usually want to re-invest those capital gains distributions and, in order to do this, they will need to go back to their brokers to buy more shares, which creates new fees.

Lump Sum vs. Dollar Cost Averaging
Buying an ETF with a lump sum is simple. Say $ 10,000 is what you want to invest in a particular ETF. You calculate how many shares you can buy and what the cost of the commission will be and you get a certain number of shares for your money.

However, there is also the tried-and-true small investor’s way of building a position. This way is called dollar-cost averaging. With this method, you take the same $ 10,000 and invest it in monthly increments of, say, $ 1,000. This is called dollar-cost averaging because some months you will buy fewer shares with that $ 1,000 because the price is higher. In other months, the share prices will be lower and you will be able to buy more shares.

Of course, the big problem with this strategy is that ETFs are traded like stocks; therefore, every time you want to purchase $ 1,000 worth of that particular ETF, you have to pay your broker a commission to do so. As a result, it can become more costly to build a position in an ETF with monthly investments. For this reason, trading an ETF favors the lump sum approach.

The rule here is to try to invest a lump sum at one time to cut down on brokerage fees.

The Bottom Line
Now that you know the risks that come with ETFs you can make better investment decisions. ETFs have seen spectacular growth in popularity and, in many cases, this popularity is well deserved. But, like all good things, ETFs also have their drawbacks. Making sound investment decisions requires knowing all of the facts about a particular investment vehicle – ETFs are no different. Knowing the disadvantages will help steer you away from potential pitfalls and, if all goes well, toward tidy profits.

30 years ago, Bunker Hunt, while trying to demand delivery for virtually every single silver bar in existence, and getting caught in the middle of a series of margin hikes (sound familiar), accused the Comex (as well as the CFTC and the CBOT) of changing the rules in the middle of the game (and was not too happy about it). Whether or not this allegation is valid is open to debate. We do know that “testimony would reveal that nine of the 23 Comex board members held short contracts on 38,000,000 ounces of silver. With their 1.88 billion dollar collective interest in having the price go down, it is easy to see why Bunker did not view them as objective.” One wonders how many short positions current Comex board members have on now. Yet by dint of being a monopoly, the Comex had and has free reign to do as it pleases: after all, where can futures investors go? Nowhere… at least until now. In precisely 9 days, on May 18, the Hong Kong Mercantile exchange will finally offer an alternative to the Comex and its alleged attempts at perpetual precious metals manipulation.

From Commodity Online:

The Hong Kong Mercantile Exchange (HKMEx) has received authorisation from the Securities and Futures Commission and will make its trading debut on May 18, 2011 with the 1-kilo gold futures contract offered in US dollars with physical delivery in Hong Kong.

The ATS authorisation grants HKMEx the right to offer market participants, through its member firms, the use of its state-of-the-art electronic platform to trade commodities. The Exchange will begin trading with at least 16 members including some of the world’s largest financial institutions as well as several well-established brokerages in Hong Kong.

“We are very excited about this historic day. It allows us to establish a liquid and vibrant international commodities exchange based in Hong Kong, linking China with the rest of Asia and the world,” said Barry Cheung, chairman of HKMEx. “Global demand for core commodities has in recent years been driven by Asia, especially China and India. However, market participants in the region have had to rely on Western exchanges for price discovery, bearing the basis risk exposure in the process. Our new platform will offer Asia a bigger say in setting global commodity prices. It will also enable market participants to more actively manage their risk exposures, using products tailored to Asian market needs.”

HKMEx’s broking members at launch include BOCI Securities Ltd, Celestial Commodities Ltd, CES Capital International Co. Ltd, Chief Commodities Ltd, ICBC International Futures Ltd, Interactive Brokers LLC, KGI Futures (Hong Kong) Ltd, MF Global Hong Kong Ltd, Morgan Stanley Hong Kong Securities Ltd, OSK Futures Hong Kong Ltd, Phillip Commodities (HK) Ltd, Tanrich Futures Ltd and TG Securities Ltd. Its three clearing members are Interactive Brokers (UK) Ltd, MF Global UK Ltd and Morgan Stanley & Co International Plc.

And while the Chinese market is far more bubbly when it comes to gold and silver purchases, it remains to be seen just how happy a gambling addicted Chinese population will take to spurious and conveniently timed margin hikes that take the air out of the next parabolic move up in gold and silver (our guess is not very).

Far more importantly, the Comex monopoly appears to be over, and going forward the exchange will have to be far more sensitive about angering broad swaths of the population using 5 consecutive margin hikes in 9 days. The new exchange will also make the now traditional “banging the close” operation (or “banging the whatever” as the May 1 15% drop from $ 49 to $ 42 in minutes demonstrated) obsolete, as traders will have options of where to route orders from the hours of 0800 HKT to 2300 HKT.

Bottom line: if Chinese demand for gold and silver is as strong as it was a week ago, and it is, the recent Comex-directed plunge in precious metals is about to the BTFDed.

From the HKMex:

HKMEx is introducing a 32 troy ounce gold futures contract useable by a wide range of market participants to execute hedging, arbitrage and other investing strategies. Moreover, the HKMEx gold futures contract has the following important characteristics designed to meet the needs of a marketplace which lacks an international price-setting mechanism in the Asian time zone:

* Secure physical delivery in Hong Kong meeting international standards
* Trading execution on an advanced and robust electronic platform
* World-class clearing functionality
* Extended Asian day trading hours to tap into global market liquidity
* Contract specifications tailored to market participants in Asia

Gold is one of the world’s most important and actively traded commodities. Demand for the metal is driven by three main factors: the jewellery market, industrial manufacturing and financial investment. In addition, gold is relatively unique in that it is used as both a commodity and a monetary asset.

Although gold has a long trading history in Asia, the majority of price formation for gold is today concentrated in the North American and European markets. In recent years, the introduction of gold futures trading in Asia has tapped into latent trading demand that is primarily driven by strong economic development in China and India.

Hong Kong is historically one of the world’s leading gold centres and has a natural geographical advantage in Asia. Hong Kong’s vibrant financial infrastructure ensures access to leading market participants and deep regional and international pools of liquidity.

Trading hours for the HKMEx gold contract will extend from 0800 HKT to 2300 HKT, opening with TOCOM in Japan and encompassing the London Bullion Market Association AM Fixing, the opening of COMEX, and the LBMA PM Fixing. The HKMEx opening auction will run from 0730 to 0800.

While gold futures trading on Asian exchanges has demonstrated significant growth, there is currently no contract that is or will likely become a regional benchmark contract for gold pricing. Without a regional benchmark, true price discovery for gold is either confined to the local in-country market or must depend on the European or North American markets. In-country markets generally restrict foreign participation and often subject it to adverse currency restrictions or tax treatment. Meanwhile, global benchmark pricing from the western hemisphere provides imperfect hedging for Asia’s trading community.

HKMEx is well positioned to address the demand of Asia’s trading community for the establishment of a gold futures contract as the regional benchmark.