Personal Finance

The Canadian Dollar and its Ups and Downs

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Vitalogy80 wrote: But aren't you just an index investor? The TSX is up 6%...that's good, but I don't think it's anything crazy
Yeah 80% indices, 20% other stuff. The performance of the 20% "other stuff" has been extremely strong. Mostly USD$ denominated as well.
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Mark77 wrote: Yeah of course, in the coming weeks, I will sell more USD$ if this keeps up, and use the proceeds to buy inversely correlated assets that are on sale. You know what they say, "sell high, buy low".
A few months ago, you proclaimed that you sold significant port of US dollar to Canadian dollar.

What do you mean if it keeps up? So now 1.12 is not low enough for you?

Are you looking for 1.15? 1.2?

So you are saying the Canadian Dollar will go lower?
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techcrium wrote: A few months ago, you proclaimed that you sold significant port of US dollar to Canadian dollar.
What do you mean if it keeps up? So now 1.12 is not low enough for you?
Are you looking for 1.15? 1.2?
So you are saying the Canadian Dollar will go lower?
I believe we will be going back to parity and beyond, on the strength of the fundamentals (namely, domestic debt deflation, a strong export sector, and external demand for Canadian dollars and Canadian assets) but I've never spoken of a timeframe.

The long term top for the Canadian dollar is likely to be just as severe as the long-term bottom. The long-term bottom was 63 cents. So $1.58 could be a long-term top.

I expect the gold sector to drive the CAD$/USD$ to a top, much like the US tech sector drove USD$/CAD$ to a top in the late 1990s. Probably a timeframe in the late 2010s to mid 2020s for that. Maybe even a little bit later, given that the cycle tends to take about 30 years.

As gomyone's quote stated, and I agreed with, there is likely to be some turbulence along the way.
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Mark77 wrote: I believe we will be going back to parity and beyond, on the strength of the fundamentals (namely, domestic debt deflation, a strong export sector, and external demand for Canadian dollars and Canadian assets) but I've never spoken of a timeframe.

The long term top for the Canadian dollar is likely to be just as severe as the long-term bottom. The long-term bottom was 63 cents. So $1.58 could be a long-term top.

I expect the gold sector to drive the CAD$/USD$ to a top, much like the US tech sector drove USD$/CAD$ to a top in the late 1990s. Probably a timeframe in the late 2010s to mid 2020s for that. Maybe even a little bit later, given that the cycle tends to take about 30 years.

As gomyone's quote stated, and I agreed with, there is likely to be some turbulence along the way.
You live in some kind of parallel economy. Let me tell you how I see it:

- CAD parity was fueled by US depression & oil prices:
* US economy is growing faster than CA economy, multiple analysts and policy makers have confirmed this
* Demand for oil is down on slowing growth in developing markets. I see more and more Teslas every day. Solar is getting big in USA. I don't see the demand for oil going up if technical progress continues.

- Interest rates
* BoC is not rising rates anytime soon: due to high indebtedness of the average Canadian, slower economic growth and lower than expected inflation
* Fed may be rising rates, thus more support for USD

- Free trade treaties. I don't know when these will come into effect but how do you think they will affect the trade deficit given lower demand for resources and cheaper imported goods? If you were a policy maker at BoC what would you do to help Canadian exports?
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elwebmaster wrote: You live in some kind of parallel economy. Let me tell you how I see it:

- CAD parity was fueled by US depression & oil prices:
* US economy is growing faster than CA economy, multiple analysts and policy makers have confirmed this
* Demand for oil is down on slowing growth in developing markets. I see more and more Teslas every day. Solar is getting big in USA. I don't see the demand for oil going up if technical progress continues.

- Interest rates
* BoC is not rising rates anytime soon: due to high indebtedness of the average Canadian, slower economic growth and lower than expected inflation
* Fed may be rising rates, thus more support for USD

- Free trade treaties. I don't know when these will come into effect but how do you think they will affect the trade deficit given lower demand for resources and cheaper imported goods? If you were a policy maker at BoC what would you do to help Canadian exports?
Exactly. Unfortunately you've chosen to engage the troll - expect a 20 page treatise on how you are wrong and he is right.

Edit: As I predicted :arrowd:
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elwebmaster wrote: You live in some kind of parallel economy. Let me tell you how I see it:
- CAD parity was fueled by US depression & oil prices:
Sure, and has there been an end to that? No. Oil prices are still within, on a yearly basis, their all-time highs. Not heading substantially down anytime soon, as production costs have risen dramatically. And the US economy continues to weaken and will as a secular trend after reaching an apex in 1999-2000.
* US economy is growing faster than CA economy, multiple analysts and policy makers have confirmed this
I disagree. The US economy does not appear to be growing in any meaningful way, and the number of people employed is not meaningfully improving. Even a slight removal of QE, sometimes called 'tapering', is having a calamitous effect on the quite weak US economy. And the Fed still has to unwind its balance sheet even if they actually "taper" to $0.
* Demand for oil is down on slowing growth in developing markets. I see more and more Teslas every day. Solar is getting big in USA. I don't see the demand for oil going up if technical progress continues.
Actually the developing markets' oil demand is just fine. Demand is down in the US, and will continue to fall because of the increasing state of depression they are facing there. The US is gradually losing its ability to import large amounts of cheap oil by issuing USD$ debt, and will have to reduce its consumption to levels consistent with its own domestic production and ability to export goods and services. Additionally, the US has a significant amount of debt to repay. This does not lend itself to a strong dollar.
- Interest rates
* BoC is not rising rates anytime soon: due to high indebtedness of the average Canadian, slower economic growth and lower than expected inflation
Deflation of debt is CAD$ positive, as it implies that Canadians' savings rates will need to rise to repay the debt. Rates are likely to stay similar, if not fall.
* Fed may be rising rates, thus more support for USD
Doubtful. Rising rates in the US support capital flight from the US as most US assets are strongly interest rate sensitive. Such as long-term debt, housing, and the stock of firms heavily dependant on short term credit. Fed raising rates is CAD$ positive generally. As is higher US inflation if they fail to raise rates.
- Free trade treaties. I don't know when these will come into effect but how do you think they will affect the trade deficit given lower demand for resources and cheaper imported goods? If you were a policy maker at BoC what would you do to help Canadian exports?
I don't believe the BoC has any policy tools that it can use to help Canadian exports. I believe Canadian export growth is dependant on global demand for commodities, as well as certain Canadian-based innovation industries being able to access capital on a low-cost basis to fund R&D. I don't see exports as being a problem in Canada -- we have plenty of export capacity. I believe export growth will be difficult, and Canada will increasingly have to turn to measures to stimulate domestic consumption in order to drive the economy. Which will be quite difficult given housing deflation.

You can think of Canada as being somewhat of an opposite of the US. While the US had a strong dollar, Canada had a very weak dollar. The US was able to become a massive net importer, issuing its debt to foreign buyers, to import more than it exported. Canada, OTOH, has been a significant net exporter, accumulating foreign assets. Over the next 10-20 years, Canada will be able to be a significant net importer, and issuer of foreign debt.

If you look at charts of Canada's foreign debt versus the USA's foreign debt, there is no comparison, even adjusting on a per capita basis. The US is far more indebted than we are. Devaluation of the US dollar along with becoming a net exporter are the only realistic ways that the US is going to achieve this. And this means a much lower US dollar, which also means a substantially higher Canadian dollar. Throw in a gold mania (perhaps Chinese-driven), and there could be many additional hundreds of billions of dollars chasing Canadian assets.
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To bad that the drop did not happen couple years ago, fuel and other good we pay for in American dollars will become more expensive meanwhile manufacturing in terms of seeing of some relief will happen but really the damage of the high plus the great recession has already destroyed a lot of the sector.
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olek86 wrote: To bad that the drop did not happen couple years ago, fuel and other good we pay for in American dollars will become more expensive meanwhile manufacturing in terms of seeing of some relief will happen but really the damage of the high plus the great recession has already destroyed a lot of the sector.
Manufacturers don't respond to short-term trends in the CAD/USD pair. They look at the longer term. And right now, the evidence is overwhelming that the weakness in the CAD$ is short-term in nature. Largely speculatively driven (speculators are usually "dumb money"). The real users of the Canadian dollar, the commercial traders, are actually reasonably CAD$ bullish if you examine the CoT reports as I have cited on a number of occasions.

If industry believed that CAD$ weakening was going to be a long-term trend, then we would be seeing the early stages of a revival in manufacturing. Yet we see quite the opposite, with much of the Canadian auto industry, Ketchup factories, etc., leaving Canada.

Canadian CPI growth is pretty much non-existent and has been even despite the CAD$ losing 10% over the past year. Yes, the CAD$ has weakened over the short term, but the US and global economies have also weakened, causing pricing to fall with falling demand. As the speculators' bets are unwound, keeping CPI growth > 0 and the dollar below parity will be quite a policy challenge for the BoC within the traditional interest rate policy toolset.
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I just hope that Mark77 invests based on his beliefs:

BBRY
ABX et al.
Canadian Dollar
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I most certainly do. But it is important not to get carried away with any sort of directional trade. Lots of people have gotten the overall direction correct, but have been taken out because they piled into the trade with too much leverage. The CAD$ is going up in the long term, but who knows, it could very well go down into the mid-low 80 cents if enough speculators want to push it there against the fundamentals. Just means the reaction out of such will be particularly violent when it eventually does happen.
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Mark77 wrote: Manufacturers don't respond to short-term trends in the CAD/USD pair. They look at the longer term. And right now, the evidence is overwhelming that the weakness in the CAD$ is short-term in nature. Largely speculatively driven (speculators are usually "dumb money"). The real users of the Canadian dollar, the commercial traders, are actually reasonably CAD$ bullish if you examine the CoT reports as I have cited on a number of occasions.

If industry believed that CAD$ weakening was going to be a long-term trend, then we would be seeing the early stages of a revival in manufacturing. Yet we see quite the opposite, with much of the Canadian auto industry, Ketchup factories, etc., leaving Canada.

Canadian CPI growth is pretty much non-existent and has been even despite the CAD$ losing 10% over the past year. Yes, the CAD$ has weakened over the short term, but the US and global economies have also weakened, causing pricing to fall with falling demand. As the speculators' bets are unwound, keeping CPI growth > 0 and the dollar below parity will be quite a policy challenge for the BoC within the traditional interest rate policy toolset.
Carney played the U.S economy short, he really thought that the crisis would be sever but not as long as it has been, so the pushing of the Canadian dollar was meant to be a short term solution for certain aspects of the economy, the U.S recovery has been slow and finally now picking up, meanwhile because of the Canadian economy still being largely a plant economy to the U.S, manufacturing centers started to disappear through U.S companies closing Canadian plants while those companies that where independent where largely being influenced by the high Canadian dollar and low U.S demand.
Hence why there such pressure on companies to open trade relationships with developing countries because as we have seen tampering created capital flows into developing countries which created demand but largely was not tapped into by Canadian companies so now that while yes the U.S economy is rebounding, manufacturing jobs and growth has been falling for the last decade
http://www.sfgate.com/business/bloomber ... -5335514.p
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olek86 wrote: Carney played the U.S economy short, he really thought that the crisis would be sever but not as long as it has been, so the pushing of the Canadian dollar was meant to be a short term solution for certain aspects of the economy, the U.S recovery has been slow and finally now picking up,
Disagree with the bolded part. And there's not going to be any acceleration of growth in a rising long-term interest rate environment.
meanwhile because of the Canadian economy still being largely a plant economy to the U.S, manufacturing centers started to disappear through U.S companies closing Canadian plants while those companies that where independent where largely being influenced by the high Canadian dollar and low U.S demand.
There's significant overall demand problems in our key industries. Its not so much that the auto sector is relocating to the US, but rather, the auto manufacturing sector is shrinking and Canadian capacity is being deemed surplus to global requirements.

The amount of car use in the USA has been going down with the weakening economy, and fleet longevity is up.
Hence why there such pressure on companies to open trade relationships with developing countries because as we have seen tampering created capital flows into developing countries which created demand but largely was not tapped into by Canadian companies so now that while yes the U.S economy is rebounding,
manufacturing jobs and growth has been falling for the last decade
http://www.sfgate.com/business/bloomber ... -5335514.p
Not seeing any evidence of a US rebound or recovery. If anything the Canadian exporters are looking for new markets because the US economy isn't recovering and the US isn't emerging as a source of demand. Of course, looking for new markets is something that all exporters do constantly. If Canada doesn't find countries to consume its surplus of energy or commodities, we can simply consume them ourselves.
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Here's a visual just to somewhat clarify what I'm talking about:

[IMG]http://i58.tinypic.com/2jfmyde.png[/IMG]

Balances of trade over the long term must integrate (add up) to zero, ie: no country can perpetually export more than it imports, and no country can perpetually import more than it exports.

We can see that Canada has enjoyed a significant legacy of being a strong net exporter, ie: a positive balance of trade. Largely associated with a low Canadian dollar, and actually peaking with the bottom of the Canadian dollar in 2001 (you can thank Nortel for that!!!!).

Thus, a substantial part of the graph must be spent below zero, ie: a strong net importer, to satisfy the condition that area under the curve must add up to zero (note that the graph is not inflation-adjusted, so the curve would be somewhat greater in the earlier years!).

A strong CAD$ facilitates this. And as Canadians, we should basically look forward to a proverbial "party time" for the next few decades, as we've suffered austerity for the past few decades.

What will this 'party time' look like? Low interest rates when they rise sharply throughout the rest of the world. Rising standards of living. A sharply positive equity risk premium. The ability of the government to fund robust infrastructure renewal. Relatively inexpensive energy. Good jobs in consumption-related sectors. The ability to import lots of temporary foreign workers in the 'service' sector without a lot of social unrest. Even Real Estate prices probably will not collapse as severely as predicted by looking at equivalent models of the United States.

I hope the people in this thread don't take the CAD$ doom and gloomers too seriously. Really, its a very bright future we've (well mostly our forefathers) built in Canada.
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Mark77 wrote: Here's a visual just to somewhat clarify what I'm talking about:

[IMG]http://i58.tinypic.com/2jfmyde.png[/IMG]

Balances of trade over the long term must integrate (add up) to zero, ie: no country can perpetually export more than it imports, and no country can perpetually import more than it exports.

We can see that Canada has enjoyed a significant legacy of being a strong net exporter, ie: a positive balance of trade. Largely associated with a low Canadian dollar, and actually peaking with the bottom of the Canadian dollar in 2001 (you can thank Nortel for that!!!!).

Thus, a substantial part of the graph must be spent below zero, ie: a strong net importer, to satisfy the condition that area under the curve must add up to zero (note that the graph is not inflation-adjusted, so the curve would be somewhat greater in the earlier years!).

A strong CAD$ facilitates this. And as Canadians, we should basically look forward to a proverbial "party time" for the next few decades, as we've suffered austerity for the past few decades.

What will this 'party time' look like? Low interest rates when they rise sharply throughout the rest of the world. Rising standards of living. A sharply positive equity risk premium. The ability of the government to fund robust infrastructure renewal. Relatively inexpensive energy. Good jobs in consumption-related sectors. The ability to import lots of temporary foreign workers in the 'service' sector without a lot of social unrest. Even Real Estate prices probably will not collapse as severely as predicted by looking at equivalent models of the United States.

I hope the people in this thread don't take the CAD$ doom and gloomers too seriously. Really, its a very bright future we've (well mostly our forefathers) built in Canada.
But due to this currency war between US and CA, both currecies have depriciated alot to other international pairs such as euro and swissie.
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Mark77 wrote: Here's a visual just to somewhat clarify what I'm talking about:

[IMG]http://i58.tinypic.com/2jfmyde.png[/IMG]

Balances of trade over the long term must integrate (add up) to zero, ie: no country can perpetually export more than it imports, and no country can perpetually import more than it exports.

We can see that Canada has enjoyed a significant legacy of being a strong net exporter, ie: a positive balance of trade. Largely associated with a low Canadian dollar, and actually peaking with the bottom of the Canadian dollar in 2001 (you can thank Nortel for that!!!!).

Thus, a substantial part of the graph must be spent below zero, ie: a strong net importer, to satisfy the condition that area under the curve must add up to zero (note that the graph is not inflation-adjusted, so the curve would be somewhat greater in the earlier years!).

A strong CAD$ facilitates this. And as Canadians, we should basically look forward to a proverbial "party time" for the next few decades, as we've suffered austerity for the past few decades.

What will this 'party time' look like? Low interest rates when they rise sharply throughout the rest of the world. Rising standards of living. A sharply positive equity risk premium. The ability of the government to fund robust infrastructure renewal. Relatively inexpensive energy. Good jobs in consumption-related sectors. The ability to import lots of temporary foreign workers in the 'service' sector without a lot of social unrest. Even Real Estate prices probably will not collapse as severely as predicted by looking at equivalent models of the United States.

I hope the people in this thread don't take the CAD$ doom and gloomers too seriously. Really, its a very bright future we've (well mostly our forefathers) built in Canada.
LOL - what kind of garbage economics is this - the "area under the curve" doesn't have to add up to the area above the curve. :facepalm: The trade balance can remain in deficit as long as there is a capital account surplus (ie., the "correct math" in economics is that the current account by definition must equal the capital account). In other words, as long as there are other countries willing to finance a country's trade deficit then it can run a perpetual trade deficit Witness the US which has run trade deficits for many, many years:

[IMG]http://www.ourprg.com/wp-content/upload ... lance1.jpg[/IMG]

The US was able to run a perpetual current account deficit (capital account surplus) because the USD is a reserve currency (ie., foreigners(mainly China) was willing to underwrite the deficit).

Canada is not as lucky. Its trade deficit has grown because of a persistently overvalued C$ as it was increasingly perceived as a "safe haven" too. But now investors are not willing to support this deficit, particularly since the Bank of Canada doesn't look like it will eventually reward them with higher rates. This is why the C$ has been forced to depreciate over the last few months. And contrary to Mark77's lack of understanding, it is why the loonie will continue face bearish pressure (turbulence) in the near term.

Eventually, the depreciation will help to push the current account back into surplus again as exports once again drive Canada's economic growth rather than subtract from it (the implication of negative trade balance). Interestingly, it can be argued that this dynamic is exactly what BoC Governor Poloz wants to see happen, which is why he has been "talking the loonie down" in recent months.

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