Canadian-American Dollar Parity
The Canadian dollar fell today in the wake of an inflation report that economists said is more likely to keep the Bank of Canada on the sidelines next month. The central bank raised interest rates to 4.5 percent on July 10, and suggested that further increases were a possibility - due to inflationary pressures. Although the Bank of Canada will probably hold off an additional rate hike because of the recent credit worries, the U.S. Federal Reserve is no longer expected to stay put on Sept. 18. Economists predict the U.S. Feds to cut rates to mitigate the increased downside risks to economic growth. Some economists see the lack of Bank of Canada tightening, and a weaker starting point to take away the Canadian dollar’s shot at parity.
Whatever the case may be, there are many other issues to consider. Many foreign countries are looking to reduce their holdings of US dollars for a variety of reasons. Countries like Iran, and even European nations and Japan are looking to move commodity trading to other currencies, such as the Euro or Yen. Many other countries hold so much US dollar debt that they do not want more US dollar exposure.
While on the other hand, the Canadian dollar may be volatile, but its position as being one of the most appreciating currencies in the world, not just against the USD, is backed by strong fundamentals including a growing demand for our commodities, a strong economy and well managed finances.
We are well past those days where we could simply put Canada and America side-by-side to forecast their respective currencies against one another.
Let’s take a look at some of the effects of a strong Canadian dollar:
- Canadian exporters lose ground because their products become more expensive for U.S. buyers
- Since 2002, Statistics Canada says 189,000 manufacturing jobs have disappeared in Canada. The agency places the blame squarely on the soaring loonie.
- Canadian exporters will need to improve efficiency and innovation in order to sell (a good thing), rather than relying on a cheap loonie
- Canadian companies can invest more in U.S.-made tools to help improve efficiency and competitiveness
- As the Canadian dollar rises, the cost of repaying U.S. dollar debt falls
- Canadian visitors to the U.S. will find their money buying a lot more south of the border
- Conversely, U.S. visitors to Canada will find their money buying less here
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The necessity of diversification……………by Currency.
Lets all agree that change is inevitable. The ability to detect or understand a specific change then act on it as an opportunity to make money is……exceptional.
For all types of creating wealth, we must remain cognizant of diversification.
This concept is very relevant and necessary when allocating to asset classes, geographical location, related industry, money manager, or project developer.
What about diversification by currency within your holdings?
Most millionaires and valuable corporations should have the four main currencies.
These include Canadian dollar, American dollar, Swiss Franc, and Euro.
Nobody knows for sure what will happen, only speculation as to the future of the Canadian dollar value. This currency diversification concept will make your investments safer, more stable, and may dramatically increase your return over time.
What are the chances either the American dollar gains back its value over time, or the Canadian dollar drops in value? Very good. How are the majority of your investments held? Everything on paper is exactly that until bought or sold. The United States has always been a powerhouse so accept they will always be around. Consider the undervalued businesses and buying opportunities in America right now because of the world state.
The Swiss Franc is the only currency in the world backed by gold. This is exactly why you should own S.F denominated investments. Having written that, do not consider gold to be an investment as it is only a resource, hedge against inflation, and lastly a tool to give the ultimate strength to a currency.
The Euro is the main currency of Europe. It would make more sense to hold all Euro denominated investments instead of Canadian because of its size.
In conclusion, you need outstanding, diversified investments in different currencies around the world.
An investment operation is one which upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative. –Benjamin Graham-
Produced by Cool Private Wealth Counsel Incorporated
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