US Dollar / Canadian Dollar exchange rate

[BRK7]

There are lots of US investors and Canadian investors on this forum, so I thought I’d ask how people deal with buying securities across the border. 

 

You can hedge the currency exposure, but that adds some cost and some complexity. 

 

More generally, what do you folks see as the key factors driving the value of the currencies relative to each other?  What do you see as the "equilibrium" exchange rate and why?

 

Thanks for sharing any insights or research.

 

[Mark Jr.]

My main business is a web services company and we do roughly half our revenues in USD, so I have been watching this and thinking about it for over a decade.

 

I personally think the days of a USD worth 1.35 CDN are gone and the new normal will be roughly par +/- 0.5, so .95 to 1.05 with occasional spikes higher on the USD side during financial panics (yet even those spikes will be to lower highs, during the 2008 panic it went back up to somewhere north of 1.15 and we've gotten nowhere close to that during the Eurozone crisis...yet).

 

I have been personally positioning/bracing for a much stronger Canadian dollar since around 2005-2006, when I was routinely being called "a nutcase" for positing that par would ever happen again in our lifetimes and being assured that in any case, .75 was about as high as the loonie would ever go.

 

There is a consensus that "Canada doesn't work with a dollar higher than the US", to which I personally think "It's going to have to". One way around having to worry about it would be a North American currency union - an idea I expect to see floated with more frequency over the coming years - but which I don't think is a terribly good idea (maybe we should ask some Eurozone policymakers to weigh in on that)

 

The Canadian dollar is considered a "commodity" currency, so if you think commodities are going up, it'll mean a stronger Loonie.

 

But I am also seeing more and more references to it as another type of "safe haven" currency. I think Peter Schiff recently called it one of his favorite currencies worldwide. There is a perception that the banking system here is "safer" (which may not be true, on a relative basis, compared to some of the US banks post-restructuring there and pre-housing-crash here)

 

Having said all that.

 

For the longest time I just flat out wouldn't touch US Equities because of this fear of a declining US dollar, but lately I haven't been letting it stop me because I think I was mistaken in avoiding the entire spectrum of US companies based entirely on currency risk.

 

 

[SharperDingaan]

Look into the operations of most TSX listed companies. Often a high % of the sales revenue is from outside Canada, & a good chunk of expense may also be in foreign currency (Indian call-centre, foreign assembly centre, etc.). You already have FX exposure - you don’t need to buy it.

 

Often forgotten is that the $C is a petro-currency backed with probably THE largest oil reserves in the world (Tar Sands + Beaufort + Hibernia). Given that most would expect another Bretton-Woods/Plaza Accord following Europes eventual resolution, it is hard to see why the $C would not settle somewhere in the $1.50-$2.00 range. Probably over a few years (BOC intervention).

 

SD

 

[Uccmal]

I have a USD account with TDWaterhouse. I buy nearly all my US stocks in this account.  There is no conversion involved until the day sometime in the distant future when I close the accounts.  They make up a slight majority of my total.  The canadian positions being mostly FFH, and a few 3-5 percenters.

 

There have been much better deals in the US in the last couple of years.  I dont really worry about currency much.  I figure it will mostly work itself out over time.  I think there is sort of a balance now.  I have noticed that every "shock" results in a flight to safety and it isn't the CDN dollar that goes up.  The US dollar rises compared to everything else.  As the shock wears off the US dollar backs off, US treasury yields rise, and the CDN dollar goes up.  What happens in Canada has little relevance to the relative value of our currency to the USD. 

 

What is beneficial to me is the rise of the US/CDN currency to the €\£.  We will be spending a couple of weeks in GB this coming spring. 

[BRK7]

Thanks, guys.  Good info.