What do Family Radio and Bank of America Have in Common?

The Canadian government reported an increase for April's consumer price index which was below most analysts' expectations, according to Bloomberg. Following the news, the Canadian dollar depreciated against the U.S. dollar.

This is in contrast to a prediction made by a Bank of America (NYSE: BAC) currency strategist that the Canadian currency would rally sharply following the report. Looks like Family Radio isn't the only organization making false predictions this week.

The decline in the Canadian dollar may have been predicated on the assumption by traders that the Canadian economy was not growing as much as anticipated.

Traditionally, inflation has been seen as a sign of brisk economic activity. In standard economic theory, inflation increases as the velocity of money increases--the velocity of money increasing due to additional economic activity.

The value of the Canadian dollar has had the tendency to move synchronously with the price of commodities. Canada is a major exporter of raw materials, especially oil, and the Canadian dollar has been appreciating over the past year as the price of most commodities has increased.

On the other hand, a stronger Canadian dollar might mean cheaper imports for Canadian citizens. That may lead to lower inflation.

Traders will have to decide if they believe that lower-than-expected inflation numbers in Canada are bullish or bearish for the Canadian dollar. Traders who believe that the Canadian dollar may be oversold might want to consider CurrencyShares Canadian Dollar Trust (NYSE: FXC). FXC attempts to return a value corresponding to the strength of the Canadian dollar and may do well if the Canadian dollar rebounds.

Traders could also consider a play on oil. If traders believe that the price of oil will continue to decline and thereby weaken the Canadian economy, but do not wish to directly make a play against Canada, they could consider United States Short Oil Fund (NYSE: DNO). DNO attempts to correspond in value inversely to the price of oil.

Hopefully no traders lost too much money betting on Bank of America's assessment. Otherwise they might hope the world really does end tomorrow.