Dance Your Circles Around the Soaring Loonie

It seems there isn’t much else to discuss these days in Canada other than our soaring loonie. But we’re also hearing from our Canadian subscribers complaining how, because of the soaring loonie, portions of their portfolios held in have taken a beating. I guess it is time for Canadians to learn how to dance in circles around the shooting star.

The good news is that some currency analysts don’t expect this valuation to take hold. For example, Drew Abbot of TD Waterhouse stated in last Saturday’s “Globe and Mail” that, “One of the things I’m looking at doing now is simply moving Canadian money to the U.S. Even if you put that into a U.S. money market fund earning five percent, if the dollar comes back down from USD$1.07 to USD$1.00, that’s a 12-percent return over a year. The major move has obviously been done. Whether we’re timing it properly is impossible to tell, but that’s one strategy.”

Abbott expects the Canadian dollar to settle in the US$95.00 to US$1.00 range within the next 18 months.

We know why the loonie has gained approximately 70% since it last traded at about US$0.62. It was a combination of rising oil prices and weakening/slowing North American economies, which resulted in the loonie being this year’s best performing currency worldwide. And while Canadians’ purchasing power outside the country’s border has increased, their existing foreign stocks and assets have not fared that well. No wonder Canadians have been both proud shoppers and frustrated speculators as of late.

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The consensus on Bay Street is that, in this market, it might not be wise to pull all foreign-placed assets back to Canada, particularly if Abbott’s prediction materializes. In fact, many traders are of an opinion that now could be perhaps a very good time to buy certain U.S. securities, provided you have the stomach and patience to let the loonie have its run.