Canadian Dollar Up — What Does it Mean for Investors?

The Canadian dollar (CAD) is currently trading near a 30-year high against the U.S. dollar (USD) and appears to be making a move towards par. If you have been reading my commentary, you would have known how bullish I have been on the CAD. On Friday, the cash CAD traded above $0.97 USD.

 The trend for the CAD is bullish and, according to CIBC World Markets, the CAD could trade at par with the USD by the end of this year.

 For investors in both countries, there are drastic effects on investable assets. For Americans holding any CAD-based investments, the foreign exchange appreciation has been a boost to their portfolios; but for those not holding Canadian assets or other foreign assets, the decline of the USD has been problematic. The reality is that if you own U.S.-dollar-based assets such as stocks and bonds, you really need to think about diversifying your portfolio. The trend for the USD is down and I expect it may continue to drift lower against major currencies such as the Euro and Yen.

 For Canadians, your investable assets bought in U.S. dollars have suffered a decline. Just think; if you bought U.S.-listed stocks a few years back when the exchange ratio was about $0.54 USD for $1.00 CAD, you would have suffered some significant declines. At the current exchange ratio, U.S. stocks along with goods and services are now cheaper for Canadians.

 The USD is trading at a three-decade low against the commodity- based Canadian dollar, which has been benefiting from the price appreciation in oil, gold, and metals. With demand from China continuing to rise for commodities, the outlook for the CAD remains bullish at the expense of the USD.

 The decline of the USD should not be a surprise to you, especially to those of you who have been following the commentaries in “Profit Confidential,” where we have been bearish on the USD.

 The reality is that the White House wants the USD to depreciate in order to make U.S. made products and services cheaper for foreigners and in turn help to pump up U.S. exports and reduce the surging trade deficit.

 The trend for the USD is negative and, as an investor, you need to deal with this. You should try to increase some non-USD denominated stocks or investments.