By Karim Rahemtulla
The dollar’s recent rally, which began on the first day of September, is likely being aided by how unappealing other world currencies look right now. Consider…
The euro is toxic…
The British pound is more debt ridden than the dollar, and its proximity to the Eurozone doesn’t help…
The Aussie dollar is facing a correction, thanks to downward movement in resource prices, commodity prices and a possible slowdown in China…
The Japanese yen is treading water – even in the face of government promises to devalue it for export purposes…
And the Chinese yuan – well, it could be a good option if it was more transparent. But it’s in China’s interest to keep it low, making it a slow mover at best.
Enter the Canadian dollar.
Look to the Canadians for Housekeeping Tips
Canada is in the enviable position of having a fiscally strong currency that’s well supported by internal growth and exports.
You see, the Canadian dollar’s – affectionately called the “loonie” – fortune is tied to the commodities markets (to an extent), which could present the mother of all currency trading opportunities.
Think about it… Canada isn’t going to step in and support the loonie. Policymakers want it to depreciate. At current levels, a strong loonie makes exports uncompetitive. However, given the incredible job Canadians did getting their economic house in order, it hasn’t been cooperating.
Canada is what the United States wants to be – a place with all the freedoms enjoyed in America, minus the fiscal and monetary insanity. Canada’s a place where people have to make a significant down payment to buy a home. Its environmental regulations don’t stifle its massive resource-based economy.
Not more than a decade ago, Canada was an economic basket case. Back then, you could buy one Canadian dollar of for US$0.55. Fast-forward to three weeks ago, and it takes more than one U.S. dollar to buy one Canadian dollar. Although the commodities boom helped, it isn’t the sole reason behind Canada’s economic miracle.
Politicians and the populous made tough choices to rein in government spending before it reached “Greek proportions.” And it worked.
As a low-debt nation with strong economic diversification, Canada is now the envy of most of the western world.
Why I’m Bullish on The Canadian Dollar
I’m presently very bullish on the Canadian dollar. Not only does it offer better stability than the U.S. dollar, but it also stands to benefit from a future recovery of its major trading neighbor to the south.
The Canadian dollar is down about eight percent in recent days, as the greenback has become the refuge from the European crisis. Plus, the commodities markets are crashing because of low global growth prospects. While it could continue into the foreseeable future, it doesn’t change the long-term picture a bit.
The United States will continue to print money and Europe will embark on a massive reflation. Such a reality only makes the loonie more attractive as time goes by, as I expect it to be the main beneficiary of the reflation in commodities prices with plenty of upside tied to global recovery.
A good starting point to average into the Canadian dollar is through the Rydex CurrencyShares Canadian Dollar ETF (NYSE: FXC). And the time to buy is right now, while the U.S. dollar is perceived to be the king.
I suggest initiating a position today, and adding to it on any future weakness.
Bottom line: The forthcoming stimulus in the United States, along with all the money to be printed in Europe to bail out the PIIGS, must come home to roost.
When it does, the offshoot will be higher commodities and gold prices. By default, the Canadian dollar will rise.
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