Today’s Idea comes from an offshoot of an article I wrote a while back called, “Euro’s Have Two Ways of Profiting in U.S. Dollar Investments” where I discussed US dollar investments as a long term hedge for investors holding Euros.  I made a basic argument for the U.S. dollar to gain against the Euro in the next 5 years, and the additional benefits from that currency exchange while still reaping a good return in something like an alternative investment. I still stand on that opinion and I feel the same way if not stronger about the Canadian dollar. Canada’s economy for the most part is predicated on a weak US dollar and there have been several issues related to the Canadian dollar being on par with the US dollar.  Many Americans may not know this but just about every U.S. based fortune 500 company has a noticeable presence in Canada.  Due to the Canadian dollar being weak for so long, these companies were doing a lot of their manufacturing in Canada as well as headquartering their call center operations there.   Since the Canadian dollar has been rising the manufacturing has been going elsewhere and India has been eating away at the call center business for years. These issues and others have been affecting the economy and have been masked due to the large revenues coming in from Canada’s vast resources like oil, copper, and nickel to name a few.  However, in my opinion the Bank of Canada has been artificially keeping their rates low and it seems that their goal is to assure that the Canadian dollar doesn’t gain any more strength.  In fact, the Canadian dollar has been dropping like a stone for the last two weeks due to the drop in oil and the US dollar gaining strength.  Investors holding Canadian dollar’s need to consider investing into a US dollar investment in their Canadian held portfolios.  The currency appreciation alone in the last two weeks would have been reaped about a 5% return, and with something like an alternative investment fund that can pay upwards of 9-10% this could be a pretty profitable hedge against the falling Canadian dollar. Not to mention that the TSX is looking a bit pricey right now, the Canadian economy is starting to feel the affects of a global slowdown, and with a Canadian election also looming in fall, you couldn’t ask for more uncertainty.

Copyright: Dominic Mazzone, Regent Global Funds 2008