Here a dollar, there a dollar, everywhere a dollar.
The dollar is everywhere these days. If only that meant it was worth something. But let’s face it: as a viable investment, the dollar is out.
At least it is if you’re talking about the United States’ currency. With fiscal deficits stretching into the trillions for years to come, it’s time to seriously consider diversifying out of the US dollar.
But there are ways to not only hedge against those potential losses but make a profit as well with the Canadian dollar.
The currency is currently down about 30% from its highs in 2007, but that just means we’re facing a prime buying opportunity… in a market set to push it to new levels.
Natural reserves and careful planning make for one good investment
We don’t need the International Monetary Fund (IMF) to tell us how bad things are. We already know.
Along with the US, the Eurozone and Britain are both victims of the sub-prime crisis, though the latter is in the worst shape of all. And with all of the money those countries have pumped into the system, commodity price inflation has nowhere to go but up in the long run.
Which will drive the value of the euro, the pound and the US dollar straight down, and their purchasing power right along with it.
But we expect just the opposite for their Canadian cousin. Since Canada is a major exporter of commodities such as oil, lumber and metals, commodity priced inflation actually helps its currency.
Not to mention that Canada has shown greater fiscal responsibility in the past two decades than too many other countries out there. While other governments have racked up their deficits, Canada actually brought its federal debt down from 70% of GDP in 1995 to under 30% last year.
Currently, it’s actually running a small annual surplus, though this year the country will likely head into its first deficit in years due to the global slowdown.
That hardly means that it faces the same type of financial crisis the US is suffering from. Canadian banks are sound, in large part because their residential market operated under completely different standards where sub-prime lending was much harder to come by.
And because they also didn’t have any significant or lingering exposure to the US sub-prime lending market, those banks don’t have nearly as many defaults to worry about then their international counterparts.
Wait for it… wait for it…
But before you make a trade, you need to know when to buy the Canadian dollar. For that I turned to our resident technical analyst Jim Stanton, editor of the wildly successful 123 Trader.
According to Jim, the Canadian dollar looks to have a solid base around $0.77 cents, and that is the maximum price you should pay for it. However, if the Canadian dollar makes new lows, the ideal entry point should be when it trades around the $0.7360 area, which is in the next major support zone.
Stick a limit order in or put a post-it note on your PC and check the price every couple of weeks.
Trust me when I say that little bit of extra effort to fortify your portfolio from the inevitable decline in the US dollar will be well worth it.
• This article was written by Karim Rahemtulla for the Smart Profits Report and was first published on 24 April 2009