Canadian Dollar vs US Dollar

wgraham

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Sep 14, 2007
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#1
From what I understand of economics and from what I am hearing from some senior members I keep expecting the USD to take a huge dive against the CND but the opposite keeps happening. If the US keeps dumping money into the system that should devalue their currency but it doesn`t seem to be having an effect (yet).

I have some investors from the US that I would like to work with and one of the big parts of the investment would be the currency exchange.

Does anyone who actually knows about currency want to make some predictions as to what the dollars will do short and long term?

All the best,
W
 

realfortin

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#2
QUOTE (wgraham @ Mar 10 2009, 09:55 AM) Does anyone who actually knows about currency
Ok, not an expert, but... Our dollar is heavily linked to resources such as metals, wood, oil etc. When the prices and demand rises, so does our dollar. We`re all pretty sure the demant for steel, nickel, wood, oil etc is going to increase, as will the price, then the dollar will strenghten substantially.
 

ThomasBeyer

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#3
QUOTE (realfortin @ Mar 10 2009, 11:13 AM) Ok, not an expert, but... Our dollar is heavily linked to resources such as metals, wood, oil etc. When the prices and demand rises, so does our dollar. We`re all pretty sure the demant for steel, nickel, wood, oil etc is going to increase, as will the price, then the dollar will strenghten substantially.

indeed .. thus, Can$s vs US $: in the 80`s later this year .. in the 90`s in 2010 .. @ par in 2011 .. "a nickel back" in 2012 [ this was the quote Jeff Rubin, CIBC`s chief economist used]
 

jarrettvaughan

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Sep 18, 2007
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#4
QUOTE (wgraham @ Mar 10 2009, 09:55 AM) From what I understand of economics and from what I am hearing from some senior members I keep expecting the USD to take a huge dive against the CND but the opposite keeps happening. If the US keeps dumping money into the system that should devalue their currency but it doesn`t seem to be having an effect (yet).

I have some investors from the US that I would like to work with and one of the big parts of the investment would be the currency exchange.

Does anyone who actually knows about currency want to make some predictions as to what the dollars will do short and long term?

All the best,
W


I have been doing a little research on this topic in the past weeks, so here is my very uneducated understanding. What I have learned is that there will be a large decrease in the value of the USD due to the excessive money printing. Currently, the reason that it is still strong is due to the continual efforts of the foreign (Chinese) governments in buying US debt. The reason that they are doing this (mainly the Chinese) is because they can not afford to see a decrease in the dollar, because this will result in more expensive goods out of China, which means less purchasing of those goods from the US. Eventually, the Chinese will stop buying debt (creating less demand) due to the decreasing faith in the repayment strength of the US, causing the sharp decline.

Currently, the USD is not only holding strong against the CAD but also against the Euro, Yen etc.

The only real question is when will the Chinese stop financing the debt?
 

kopilas

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#5
Well, here it goes.

In my opinion, I think we are heading towards par and will reach it within the next 12 months and here is why. Canada has the 3 F’s – Food, Fuel, Fertilizer. Who needs it the most – China. What does China have – a surplus of money. Why? Because they have been manufacturing goods and supplying them to the US for sometime. The US has not produced a whole lot. They have been a major consumer of goods though. So they have a lot of debt that they need to pay for in some way.

From my understanding, the general US population has been cashing out of the stock market and placing it into US bonds. Look at the DOW and the S&P 500 right now. Both are trending down wards. Some have bought Gold because of the belief that we are in times of uncertainty and hence Gold has an upwards trend. Because US bonds are being purchased, this is helping the US dollar look stronger, but looking at their GDP at -3.6 and other fundamentals, this doesn’t support this along with other decreasing facts such as personal consumption, exports and employment. The only increase was government spending!

Recently Hillary Clinton was in China to tell them that they need purchase US bonds so that the US can keep buying the stuff they produce. The fact is, China doesn’t need the US to buy their stuff as they have their own people that can support themselves. China will buy the stuff they need – Fuel, Food and Fertilizer.

So, since China will not buy US bonds, and the US is not producing anything of value, it too is becoming of less value (not producing anything, getting to more debt) which will drive their dollar down further. Since Canada has something of value to the rest of the world our dollar will stay strong.

Now I’m not an economist or anything close, but I have only regurgitated a lot of the facts and opinions from the big boys like Don, Peter Schiff, Marc Faber, Jim Rogers and Eric Sprott to name a few and have came up with my own. The people I have mentioned are purchasing Canadian - oil, agricultural land, precious metals etc... and are getting out of the US and getting rid of any US funds they have.

What I think you will see is the US dollar hold its strength for another month or two (because of bond buying) then start to fall. How rapid is the question will depend on how fast people will start to get out of the bond market due to the falling US dollar and start to put it into some other currency or commodity.

My (complex and long) opinion for what its worth. Whew!
 

ThomasBeyer

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#7
[quote user=kopilas]



In my opinion, I think we are heading towards par and will reach it within the next 12 months and here is why.


Well, not quite, as US has higher growth and even MORE of the 3 F's. The US is now the top 3 oil& gas producer on the planet, and may even overtake the #1 and #2, Saudi Arabia and Russia this decade.



I think we will end up somewhere between 85 and 90 cents for the rest of this decade (i.e. one Can$ buys 85-90 cents of a US$)
 

Matt Crowley

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#8
The Balance of Payments / Current Account Balance (CAB) is commonly thought to have one of the largest bearings on currency rate direction.

The following variables go into the calculation of the current account balance (CAB):





X = Exports of goods and services

M = Imports of goods and services

NY = Net income abroad

NCT = Net current transfers


[table]
















The formula is:




CAB = X - M + NY + NCT













[/table]



Countries investing capital into your country result in an appreciation of your currency.



A second useful concept is interest rate parity. It basically states that interest rates between two counties will dictate the future exchange rate. It's a bit too complex to flush out in a 30 second read but here's a link to a Wikipedia article if you are interested.



It's an arbitrage-free principal.



These are the two primary interactions that economists will evaluate when assessing the direction of interest rates / future exchange rates.



You are correct to identify currency rate risk as one of the greatest sources of risk / return. In my opinion, why bother with this risk factor at all? If you want to invest in currencies, invest directly in currencies. If in Canadian real estate, offset with futures or other derivatives. One of the worst case scenarios would be if you perform very well on the asset but lose those returns due to USD appreciation. The last thing you would want is for your performance to depend on a variable you have zero control over.
 

ThomasBeyer

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#9
[quote user=SweetZone]The last thing you would want is for your performance to depend on a variable you have zero control over.
Fair enough.



But many variables are beyond my control, most perhaps: interest rates, weather, currencies, social policies, tax rates, in- or ex-migration to a city/region/country ..
 

Matt Crowley

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#10
[quote user=ThomasBeyer]But many variables are beyond my control, most perhaps: interest rates, weather, currencies, social policies, tax rates, in- or ex-migration to a city/region/country ..



100%. Real estate is a high-control asset class so you can determine your preferred risk exposure.



The variable itself is certainly beyond anyone's direct control, but in some instances it can be managed:



- Interest rates: go fixed

- Weather: buy insurance (won't protect against "acts of God" in pretty much any case, but at least you can use historical data to understand likely environmental catastrophes)

- Currencies: can be managed in many ways (derivatives, taking USD payments and converting immediately into CAD, holding all gains in USD depending on how you want to shape the exposure)

- In-migration / ex-migration: fixed-term leases in the short term, stay away from smaller towns and one-industry cities



All I'm saying is there is often a better-suited party to manage risk exposures. You may want the full exposure if there is enough of an upside.



The U.S. has a very vested interest in depreciating its currency for exports. However, the counter-effects of a depreciating currency is that U.S. assets become relatively cheaper worldwide and attract international investors (U.S. Treasuries). This appreciates the USD. Now, the FOMC (Federal Open Market Committee) does not have the option to drop rates any further so that tool is eliminated. Similarly, every other major market economy operates on a fiat money supply and carries the ability to print it. Or, for example a country (like Argentina), may just decide not to pay back its bondholders and achieve a massive depreciation in that fashion.



I don't have a dog in USD/CAD currencies. I don't see anyone in this thread making ridiculous assumptions at all, but the currency picture is not as simple as "U.S. carries an enormous balance sheet so its currency is going to depreciate."
 

ThomasBeyer

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#11
The US currency is the most likely to Appreciate among all industrial nations. If they had the guts to introduce a federal GST of say 3-4% like all nations have and even a gasoline tax of say $50 cent a gallon, or even disallowed mortgage deductability they had a huge huge surplus today.
 

REQRentals

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Mar 10, 2014
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#12
While I am happy about the prospects for the US dollar I would suggest that there is something of a hedge built in to the other side.



Currency devaluation tends to favor hard assets such as real estate.



If the dollar goes down in value but the relative value of real estate stays the same it simply takes more dollars to buy the same house.



Where the relative value of real estate is likely to improve due to fundamentals (economic growth, housing shortage, proximity to income etc...) then it would appear you are safe in that underlying value regardless of how it is denominated ie. $ 100,000 at par or $ 200,000 @ .50c.



Devaluation also accelerates debt liquidation as you pay back less valuable dollars.



It is ironic that an American investing here over the past year would have the same complaint others are concerned about:



The prices would have gone up substantially for Canadian properties but they would be no more valuable.



Had Canada hiked interest rates the prices would likely have stalled but the currency would be worth more.



Perhaps there is a correlation between the nominally poor performance of US markets and the strength of the dollar ?



Viewed from an international perspective the performance is quite strong.