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Canadian dollar climbs to three-year high-anyone buying US dollars?


biaggio
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The CDN/USD exchange rate is highly correlated to the price of oil - as the price of oil rises so does the demand for CDN to purchase it.

Other longer term factors that favour the loonie is the rate of depreciation (monetary inflation) of both currencies.

On the other side, it is the long standing policy of the CDN government to supress the exchange rate to support CDN (read ontario's) manufacturing export sector. This is why interest rates in Canada will probably remain low for a longer time than those in the US.

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Absolutely,

The Cdn Govt is in a pickle.  They are trying everything to stop the housing boomble - they cant raise interest rates for a number of reasons.

 

Interesting times.

 

You guys think that they are in as tight of a spot as the US?

 

Traditionally, CDN interest rates have been higher than the US, reflecting the subsidiary credit status of the loonie to the world reserve currency. Canada had its credit crisis during the Trudeau/Mulroney years, running every larger deficits. The loonie plummeted to about .62 cents in 1999/2000. Once the austerity/high taxes budgets of Chretien/ Martin finally took effect, Canada started running budgetary surpluses, the national debt was reduced and interest rates lowered to the current tight spread to the greenback.

The dilemna, as has been pointed out, is whether to loosen interest rates further, or at least let the US rates rise past CDN to keep the exchange rate as low as possible or accept the job losses in the CDN manufacturing export sector.

Option 1 comes with increasing larger deficits to balance the profligacy of the US government, endless credit to fund new bubbles, tax cuts, crony malinvestment and new wars.

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Canada's economic situation looks quite good if resources are your business. With the CAN$ increasing from $0.62 to $1.03 I am not sure how manufacturers are coping (who tend to be in Ontario & Quebec). My guess is the manufacturing base will continue to shrink is size.

 

Being Canadian, currency has been my greatest challenge as an investor. I have a hard time investing in commodity companies (who can forecast what is going to happen to commofity prices)? Over the past year I have been gravitating to large cap US companies where 8 to 10% returns look pretty reasonable; the challenge is the CAN$ appreciation is offsetting the gains of a basket of US stocks.

 

How much higher do board members see the CAN$ going? I see it perhaps increasing to $1.10 over the next year... but wonder at what point to Canadian manufactuers throw in the towel.

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Canada's economic situation looks quite good if resources are your business. With the CAN$ increasing from $0.62 to $1.03 I am not sure how manufacturers are coping (who tend to be in Ontario & Quebec). My guess is the manufacturing base will continue to shrink is size.

 

Being Canadian, currency has been my greatest challenge as an investor. I have a hard time investing in commodity companies (who can forecast what is going to happen to commofity prices)? Over the past year I have been gravitating to large cap US companies where 8 to 10% returns look pretty reasonable; the challenge is the CAN$ appreciation is offsetting the gains of a basket of US stocks.

 

How much higher do board members see the CAN$ going? I see it perhaps increasing to $1.10 over the next year... but wonder at what point to Canadian manufactuers throw in the towel.

 

The real question is how much lower can the US dollar go... it is the deliberate devaluation of the USD that is driving the ratio.

You can gauge the past decline by following the USD index which  measures the performance of the US Dollar against a basket of currencies: EUR, JPY, GBP, CAD, CHF and SEK.

 

http://www.fxstreet.com/rates-charts/usdollar-index/

 

The trouble with using this index is that it understates the decline in purchasing power of the USD  because all the other constituent nations are debauching their own. The ultimate measure of the decline of the USD according to many is the number of dollars it takes to purchase an ounce of gold (the globally accepted uninflatable/deflatable monetary unit).

 

http://www.kitco.com/charts/techcharts_gold.html

 

For further reading on the causes of the debauching of the USD here is an entertaining analogy:

 

http://www.midasletter.com/index.php/gold-and-silver-and-the-endgame-for-u-s-a-inc-dollar-11040401/

 

Cheers

BBB

 

 

 

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"How much higher do board members see the CAN$ going?"

 

We expect $1.15-$1.30 within 18-30 months - primarily from rising oil/gas prices, & export volumes, driving up CAD demand.

We also expect rate hikes to kill off inflation (increasing CAD demand to buy Canada's) but it should be dampened somewhat by the higher CAD (lowering the CAD price of food imports).

 

Ontario/Quebec is not that big a problem. Just let the FX rate rise slowly, & offer tax incentives to replace equipment &/or set up service industry in the provinces. These are borderline line 'have-not' provinces, & workforce aging is allready rapidly reducing the labour pool.

 

With a potential 25% CAD appreciation - dominant USD revenue streams, or USD denominated equity, has to be a concern. If you can hold until CAD returns to parity you will not be affected .....  but it could be a very long time.

 

SD

 

 

 

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Sharper Do you really think the Loonie will trade at 1.15 1.30 US. If so I would not want to be a Ontario or Quebec politician seeking to get re-elected in 2 years time. Pretty much EVERYTHING is going Canadas way right now ,is that fact at least a little bit, in the price already. We have resources that people want right now but it seems to me at least a good portion of the demand for resources is because investors are piling into them. The creation of commodity ETF's has created a new source of demand ,organized structured hoarding that the avg man can play.

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This oil/commodities trade has lasted long enough IMO. It is hard to predict the future, but when the major topic on CNBC has become gold, silver, oil, copper and pork bellies then you know that we are close to the end of a major bull market. It may still last a while, but forget about a decade.

 

Oil at well over $100 a barrel is a major tax on the global economy. The Chinese also keep on raising interest rates to fight inflation. At some point, they will hit a brick wall like all economies having tried to orchestrate a "soft" landing. When this happens, commodities will come down the hardest. That is not to say that we will no longer need oil and other commodities, but that the froth will certainly come out. 

 

Once that happens, Canada will look pretty ugly along with its real estate bubble. Australia will be in the same camp. Currently, you can buy a small villa in Florida or in just about any State you like for the price of a bungalow or cottage with no land in cold Toronto or Montreal. Makes sense to you? I actually think that homes in Canada on a per square basis (livable inside/outside) have never been this expensive in the U.S. at the height of their bubble. The newly built houses that I have seen in most large U.S. cities in the suburbs were large, beautiful and on a nice piece of land. Very well laid out communities, close to whatever you needed. What you get up here for the same money these days is a joke.

 

World economies grew in the 80's and 90's, but commodities did nothing despite growing demand. Nowadays, the assumption is that commodities must go up in sync with global growth. I assume that supply and technologies will once again change the current mentality at some point.

 

Cardboard

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Cardboard, well put .

 

I'm extremely concerned for the people that are jumping into debt without being able to afford it in Canada. I wonder how many are living paycheck to paycheck. The way people seem to use credit baffles my mind. I was shocked by the Liberal ad where they will offer that green home tax credit, or whatever it is. Spend many 10s of thousands to get max 13,500. Would it help to teach kids in school about finance? The idea in the UK seems interesting, but I don't know if it would work. People seem to like their toys too much.

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Keep in mind that its not just CAD strengthening, its also the USD weakening.

A 12% increase in CAD fundamentals, & a 13% worsening in the US position - is a 25% total change.

 

Plus side:

Rising demand as a reserve currency against anticipated home currency devaluation

Cdn oil/gas replacing ME oil/gas. Secular volume & price increase in CAD demand

Aggressive BoC will hike rates to quell inflation. Higher rates on Canada's pulling in more CAD demand

Most sectors are now at/near pre-recession levels

Higher CAD lowers the cost of imports & inflation

 

Minus side:

Pending US muni-debt crunch. Flight out of US investment. USD oversupply

US inability to raise rates without blowing the recovery. USD outflows going to higher yields elsewhere

QE3 +++. USD oversupply.

 

SD

 

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Cardboard, well put .

 

I'm extremely concerned for the people that are jumping into debt without being able to afford it in Canada. I wonder how many are living paycheck to paycheck. The way people seem to use credit baffles my mind. I was shocked by the Liberal ad where they will offer that green home tax credit, or whatever it is. Spend many 10s of thousands to get max 13,500. Would it help to teach kids in school about finance? The idea in the UK seems interesting, but I don't know if it would work. People seem to like their toys too much.

 

It's shocking to me that Governments are accumulating debt without being able to afford it and encouraging people to borrow and spend beyond their means through low interest rates and tax cuts on consumption.

They should be doing the opposite: easing tax rates on income to encourage people to productive work, raising interest rates to encourage savings, raising the tax rates (GST in Canada) on consumption.

Fortunately, Canadian mortgage credit standards did not loosen to the point that

the US kind of gross overbuilding occurred... through no fault of the Canadian Banks, they lobbied hard for deregulation to allow them to "compete" globally. Government regulation 1, Corporate irresponsibilty 0.

There is not the supply overhang on the market that there is in the USA. Nor is there the demand destruction caused by unemployment, changing demographics, real CPI inflation and accumulation of municipal, state and national debt.

There may be a cyclical pullback in local markets in store in Canada, but fortunately we mainly produce vital commodities and services, the global demand for such is in a long term cyclical upturn.

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US inability to raise rates without blowing the recovery.

 

That, in my mind, applies equally to Canada.

 

I agree with Cardboard on the insanity of the RE market in Canada. Pure speculation everywhere IMO. And you still get headlines like this :

 

More young Canadians looking to buy homes in next two years: RBC study

 

The Canadian Press, On Thursday April 7, 2011, 7:24 am

By The Canadian Press

 

TORONTO - More younger Canadians, between the ages of 18 and 34, likely to buy a home over the next two years. About 43 per cent say they are looking to buy in that period, compared to a national average of 29 per cent, says RBC Homeownership Study.

 

... that keeps encouraging the bubble... ::)

 

stumbled across this recently :

 

“A cup of coffee at the Subway on Bank Street cost me $25,000,” moaned one investor, who found the lineup at the sales centre backed up along Gladstone halfway to O’Connor Street by the time he arrived back in line Thursday at 5:45 p.m., coffee cup in hand.

 

“They gave me a number and told me to come back Saturday,” said the middle-aged technology professional, who is investing in real estate to bolster his retirement nest egg.

 

He did return to buy an 855-square-foot Madrid, which boasts a modest den, one bedroom, two bathrooms, a large terrace and a smaller balcony overlooking Bank Street.

 

On Thursday, his condo was priced at $299,900, plus $27,500 for a parking spot and $3,500 for a locker to stash a bike or artificial Christmas tree. By Saturday morning, prices had been upped by two to three per cent on all of Central’s condo plans, pushing his basic investment to $324,000.

 

http://www.centralottawa.com/

 

 

Mind boggling!

 

 

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This is only my personal experience, but people here seem to hold two beliefs that, when combined, are dangerous:

 

1) Real estate is extremely expensive and has gone up way faster than usual in the past decade.

 

2) It can't go down, because real estate doesn't go down. And if it does, it's only going to be a little.

 

 

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