Remember to protect profits.   Here is a post from Currency ETF list which just provides the basic highlights.   Simply put, the crowded short US Dollar trade/ Long commodities has caused a flood of assets to swell anything foreign currency related.  When this unwinds,  it should not be taken lightly and will hit every hot risk asset that is out there.

As of this writing,  The CurrencyShares FXC Canadian Dollar ETF is the best currency option to play the strength of the current commodity boom.  It has more than enough trading volume with average daily trade of around 150K shares per day for any retail oriented investor to move in and out.  Operating expenses at .40% annually could be a little better but at least it is in the reasonable camp.   The USD and Canadian Dollar is the 6th most traded currency pair according to the Bank for International Settlements.

Canada’s low debt to GDP is boosting trade in the Canadian Dollar ETF which represents the national currency of the Canadian Central Bank or commonly referred to as the Bank of Canada.

Canada is a commodities-based economy which has been in the sweet spot of the recent business cycle.  Global demand continues to be strong as economies recover and emerging nations industrialize.  As global economies continue to improve, the Canadian Dollar ETF has firmed.  Canada’s government fiscal policies have kept their debt in check, with the federal debt to GDP ratio estimated to peak at 35.4% in 2010-11.

The debt-to-GDP ratio has evolved into a new gauge of a country’s fiscal health and for Canada, it is one measure in which the country is performing better than most.

“Canada’s net debt-to-GDP ratio is the lowest in the G7 economies,” said Scotiabank president and chief executive officer Rick Waugh back in February 2009. “Even with the Canadian government’s recently announced stimulus package taken into account, the net debt to GDP will remain under 30 percent.”  Due to this, the Canadian Dollar ETF has been a top performer.

The debt-to-GDP ratio compares the size of a country’s total debt with the size of its gross domestic product in percentage terms.  Measuring debt in this way is a means of figuring out whether a country can afford to maintain its existing debt obligations.

“The best way to measure debt is not in total dollars but as a comparison to the economy’s total size, known as the debt-to-GDP ratio,” wrote Michael Linden, associate director of tax and budget policy at the Washington-based think tank American Progress, in 2009.

U.S. economists Kenneth Rogoff and Carman Reinhart believe the danger point is a debt-to-GDP ratio in excess of 90 percent.  “That level has historically been associated with notably lower growth,” the two economists wrote in the Financial Times newspaper in January.  The economists estimate that once a country’s debt measure pops above that level, the national GDP loses a percentage point of economic growth.

So to summarize, FXC is the really the best and only way to play this currency, whether long or short.   There are a few others that are traded over in Europe but when you have a liquid alternative like this Canadian Dollar ETF traded on the NYSE Arca, there is no need to look any further.