Driven by strong commodity prices, Canada has seen its currency on a nice upward trend since trading at $0.62USD in January 2002. The spot Canadian dollar (CAD) broke above $0.90 U.S. dollars (USD) in May, but has since pulled back due to some weakness in commodity prices.
If you have followed Profit Confidential, you would know how bullish we were in the outlook for the CAD against the USD. The CAD also sometimes known as a “Petro currency” has clearly ridden the trend of higher oil prices along with strong upward trends in other commodities such as gold, silver, copper, nickel, and uranium.
You can benefit from a strong Canadian economy and CAD by investing in large multinational companies that have a strong presence in Canada. Companies include Proctor & Gamble Co. (NYSE.PG), Wal-Mart Stores Inc. (NYSE/WMT) and Dell Inc. (NASDAQ/DELL) to name but a few. Alternatively, you can also buy blue chip Canadian stocks or Canadian index funds that are denominated in the CAD. This allows for currency diversification in your portfolio.
The CAD is now sitting at a crux and may face some selling pressure in the near-term as it tries to remount a sustained move to above $0.90. The near-term technical picture for the basis September CAD on the IMM suggests we could see additional weakness as the picture is bearish.
My feeling is the CAD will continue to trade off the strength of commodities, especially oil prices and metals. There is resistance at the 20-day and 50-day moving averages at $0.8929 and $0.8992, respectively. But, should one or more of the key commodities soften, I expect the CAD to pause and see some downside pressure to below $0.88.
Overall, I like the CAD, but I doubt very much it can trade higher than the USD, something that happened in the mid-to-late 70s. Nonetheless, there are some excellent investment opportunities in Canada.