Loonie on a tear

by Scott Ronalds

Don’t look now, but the Canadian dollar is on a tear. After falling as low as $USD 0.70 (seventy cents against the U.S. dollar) in March 2020, the loonie is now trading around $USD 0.83. That’s a gain of nearly 20% in 15 months. The last time our dollar touched this level was in early 2015.

And the loonie’s strength isn’t just against the greenback. It’s risen 20% against the Japanese Yen, has seen double-digit gains against most Asian currencies, and has appreciated 6% against the Euro over the same period.

You’re not alone if you haven’t noticed the uptick. Vacations to the U.S. and cross-border shopping trips have been put on hiatus thanks to Covid-related border closures. With travel off the table, the common pastime of exchange rate-watching has also taken a breather.

What’s been driving the gain? Currencies are notoriously fickle and it’s imprudent to try to point to one factor. Our dollar has a history of tracking commodity prices, however, and the rise has been driven in part by the gains in oil and industrial metals. Oil has more than tripled in value since falling below $USD 20/barrel last spring, and recently topped $70 for the first time in two years, while copper has doubled, and nickel and aluminum are up roughly 50%.

If the loonie’s rise continues, we’ll all be rejoicing the next time we whip out a credit card in America. Your investment portfolio, on the other hand, has mixed feelings. When our dollar rises, your foreign investments are worth less in Canadian dollar terms (and vice versa). Yet, if you’re buying U.S. and international stocks, your dollar goes further.

Our fund managers have added to certain U.S. stocks this year at more favourable exchange rates. Examples include CME Group, S&P Global, Johnson & Johnson, Vistra, and Charles River Laboratories. A few new international purchases have also been made recently with the benefit of a stronger loonie, including Kakaku.com (Japan), Euronext (Netherlands), and Nordnet (Sweden).

We’re not in the game of trying to predict currency moves because it’s notoriously difficult. Our managers’ time is better spent focusing on company fundamentals. But when we can buy foreign stocks cheaper thanks to a stronger loonie, we’ll take it.


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