Posted on: 06-11-04 12:32:52
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ani
Is it viable to buy US currency at this time for a possible hike?
My thoughts in brief:
The looney has been on a secular uptrend for sometime now. An overwhelming majority of economists has been of the view that the Cd$ would be worth US$0.86 by year-end.
There are basically three factors that are favouring looney and as long as these remain in place we can expect Cd$ to soar to new heights.
(1) The looney is being pushed up by strong fundamentals of Canadian economy made possible by unprecedented increase in commodity prices. As long as China and India are marching ahead at the rate they are doing now, the commodity prices would see highs never seen before and Canadian economy would benefit.
(2) The interest rates in Canada are higher than that in the USA thus attracting foreign investments. In fact this year has been a record year of foreign money inflow. As long as this positive differential is maintained, the looney would benefit.
(3) It appears that the present US administration is going to pursue a weak-US dollar policy as one of its debt-management strategies. That is the reason, after Bush’s win, the looney has been scaling new highs.
A strong looney hurts the Canadian economy and a sustained uptrend in Cd$ is expected to slow down the economic activity thus forcing the Bank of Canada to intervene. But many-a-times such interventions have limited scope. The only way for the Canadian businesses to remain competitive is to increase productivity. And that takes time and investment.
In short, the Cd$ may increase in the long run but in recent times the rise has been too steep. It is expected that looney is in for a correction in coming days.
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Man's Best Friend 
Quote:
Orginally posted by YoursTruly
My thoughts in brief:
The looney has been on a secular uptrend for sometime now. An overwhelming majority of economists has been of the view that the Cd$ would be worth US$0.86 by year-end.
There are basically three factors that are favouring looney and as long as these remain in place we can expect Cd$ to soar to new heights.
(1) The looney is being pushed up by strong fundamentals of Canadian economy made possible by unprecedented increase in commodity prices. As long as China and India are marching ahead at the rate they are doing now, the commodity prices would see highs never seen before and Canadian economy would benefit.
(2) The interest rates in Canada are higher than that in the USA thus attracting foreign investments. In fact this year has been a record year of foreign money inflow. As long as this positive differential is maintained, the looney would benefit.
(3) It appears that the present US administration is going to pursue a weak-US dollar policy as one of its debt-management strategies. That is the reason, after Bush’s win, the looney has been scaling new highs.
A strong looney hurts the Canadian economy and a sustained uptrend in Cd$ is expected to slow down the economic activity thus forcing the Bank of Canada to intervene. But many-a-times such interventions have limited scope. The only way for the Canadian businesses to remain competitive is to increase productivity. And that takes time and investment.
In short, the Cd$ may increase in the long run but in recent times the rise has been too steep. It is expected that looney is in for a correction in coming days.
Would be interesting to see what the BoC does on Dec 7 when it makes its next interest rate announcement. Another hike will probably push the loonie even higher?
It was surprising that even after Greenspan raised the interest rate, the looney continued its upward march.
China, in a bid to soft-land its economy, has recently increased interest rate but Cd$ was not at all affected. In my view the market has already discounted the December rate increase by BoC.
The primary reason behind looney's strength, at this point of time, appears to be weakening US$. How far the US$ is allowed to fall will determine the looney's value in near future.
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Man's Best Friend
Looks like the US$ is set for a bearish phase atlest for the next few months. What is your personal opinion of buying as it goes lower(maybe when it is @ par or close with CAD)?
I know that there are other economies like the China and India who are slated for great growth in the future. However, the US has a track record of being an economic powerhouse and the team(US bussinesses) has a good record. In this simplistic reasoning, would it not be wise to bet on a comeback for the USD? Especially if you as an individual investor have the capacty to ride out this phase?
You guys know much more on topics like this. Any thoughts? Pros-cons are welcome.
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I have been a sufferer from the weakness of US$ in last 2 years. From a low of 1.60, C$ has strengthened to 1.1760 as of today, which is more than 26%.
However, a strong believer in US$, I have finally given up and now tonight or on Monday, I am going to sell my 50% of saving in US$ to buy either Euro or Canadian.
With the whole world now confident that it is difficult for US to survive/continue with double deficit (budget and trade), and the only way to save the country is for its currency to go down. The country's trade deficit for the year is about 600 billion dollars which is about 5% of its GDP and almost 50% of Canadian GDP, which is a huge no.
The traders of forex are betting on Canadian dollar firming up may be even upto par level with US$. With Dodge, the governor of Bank of Canada repeatedly saying that the strength in loonie is because of great economic growth of the country, it has nowwhere but to go north. Yes, recently Ottawa has been worried at the pace of the increase in C$ exchange rate, but policy makers are not going to change the view. If atall, they will try and reduce the speed, but not change the direction.
Personally, I believe that loonie has less steam than it shows, and ultimately being dependent on US of A, the problems of that country are going to affect Canada, and so loonie should in no way go up - but then the policy makers seem to have different plans. Also, FED of USA has (thru Greenspan's speech in Berlin earlier this week) confirmed that they would like the US$ to go down and neither Japan nor single currency (Euro) partners should intervene in this. The general expectation of various brokers and fund managers is that Euro should touch 1.37-1.4 by March, and may be cross 1.50 by the end of 2005
Loonie had been at par with US$ one time, and it won't be surprising, if it reaches there. Infact, last week there was a talk going on which seemed to be revival of some ealier talks a few years back, if the whole of north America should have one single currency!
For people who do not want to convert but still want to hedge, they have options of opening of trading accounts with some forex brokers and entering into spot/futures contracts. Margin requirements range from 1% to 10%
Chandresh
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Chandresh
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