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Discussion Starter #1
I bought in at .98 and starting to get cold feet. When do think the canadian dollar will get back to the low .90's again? Will it go to 1.05 or 1.10? should is sell a bit to hedge loses? I don't mind waiting a year or two to get my money back. Surely this is better than a 3% gic?
 

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Betting on currency changes is not an investing strategy for amateurs. It's pretty high risk. CDN dollar is perceived by currency traders as a petro-dollar, increasing its volatility, and no one has much confidance in predictions of recovery of the US economy, so who knows where the exchange rate is going in the short term. If you have cold feet now I suggest you get out and into something that lets you sleep at night.
 

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We will get to 0.90 in the next few years, as US economy catches up. The problem is your gains will probably be low compared to the stock market. It's not a good strategy to wait 3 years for a 10% gain.
 

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chaudi,

The reality is, know one really knows where exchange rates will go. There are fundamentals that push exchange rates in one direction or another in the short and longer terms, but exchange rates can often move in unpredictable ways. And absent any changes in fundamentals, any day-to-day fluctuations are basically a random walk.

Correct me if I'm missing anything here, but there are three main factors that will affect the exchange rate over time:
-the differential between domestic and foreign interest rates (in the short run);
-the differential between domestic and foreign inflation rates (in the long run); and
-a country's balance of payments.

Currently we are in a situation of a rising Canadian dollar relative to the US dollar. The short term reason for this is that Canadian short term interest rates are expected to rise faster than US short term interest rates. The other main reason is that Canada's balance of payments is shifting back to a current account surplus. Exports to the US are picking up (in part thanks to rising oil prices). Rising Canadian exports increase demand for the Canadian dollar. There are also longer term expectations (that may or may not be realised) that American fiscal and monetary profligacy will lead to higher inflation in the US relative to Canada. In the long run, countries with rapid inflation experience a depreciating currency.

As for using USD deposits as an investment, I would hesitate to call them that. What you are doing is speculating, not investing. While one can't rule out a rapid depreciation in the Canadian dollar relative to the US dollar, there is no guarantee that this will happen in the time frame you described. By comparison, a GIC would pay you a guaranteed return over that time frame. This is hardly a fair comparison.
 

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careful who you educate osc. if the real estate people catch on that there are time horizons to their 'my house doubled in value' hype, then they will crap their pants and dump their properties, ensuring the housing bubble hits hard and fast.
 

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This isn't much of an investment. I'd say there is a high probability that CAD:USD will be below 0.95 again in the next few years, but the risk/reward calculation seems way off. If you're going to speculate on FX, at least go with the trend. Betting against CAD was betting against the trend. You're almost certainly better off with a 5 year GIC at 4%, from a risk/reward POV (not that I would buy a long-term GIC just yet). Even a 1 year GIC at 2% is a better bet, in my opinion, than praying that CAD goes much below 0.98 in the short run.

As others have said, this is speculation and not investment, and there is a difference. Speculation is essentially just gambling, especially in the short-run.
 

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Discussion Starter #8
I didn't realize i was going against the 'trend' seems a lot of people say that the Canadian dollar is over valued. How can exporters operate with a such as lose? It was just a year or so ago it was at .78. At that time i was in Canadian currency, and i felt bad, as though i had lost that much money in a short time. So i'd rather have a .97 dollar any day over a .78 one.
Personally i feel the US dollar is far more stable than the Canadian. The USA is a world power house, the usa dollar is used all over the world from Honduras to Cambodia. Canada's economy has always relied on the US. I feel some what confident that the Canadian loonie will continue it up and down, loonie behaviour.
If i bought a GIC now at 3% and in one year the dollar is down to say .90 cents i will have lost 7%. Seems like speculation. The dollar could drop down to .95 in like the next week and there's a quick 2%. What are the chances that Canadian dollar could really get to $1.05 for sustain time? $1.10 would be truly remarkable. Already the dollar is so high, you can buy a house in the US for 100k for what would cost 300k in Canada. Imagine if that house went down to 90k for a Canuk? Not likely.
 

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I didn't realize i was going against the 'trend' seems a lot of people say that the Canadian dollar is over valued. How can exporters operate with a such as lose? It was just a year or so ago it was at .78. At that time i was in Canadian currency, and i felt bad, as though i had lost that much money in a short time. So i'd rather have a .97 dollar any day over a .78 one.
Personally i feel the US dollar is far more stable than the Canadian. The USA is a world power house, the usa dollar is used all over the world from Honduras to Cambodia. Canada's economy has always relied on the US. I feel some what confident that the Canadian loonie will continue it up and down, loonie behaviour.
If i bought a GIC now at 3% and in one year the dollar is down to say .90 cents i will have lost 7%. Seems like speculation. The dollar could drop down to .95 in like the next week and there's a quick 2%. What are the chances that Canadian dollar could really get to $1.05 for sustain time? $1.10 would be truly remarkable. Already the dollar is so high, you can buy a house in the US for 100k for what would cost 300k in Canada. Imagine if that house went down to 90k for a Canuk? Not likely.
I'm assuming you're living in Canada. Most of your expenses will be in CAD terms, so why are you measuring your investment return in USD? And why CAD:USD and not CAD:gold or CAD:euro? I'd agree with you if you were living in the US and your expenses were in USD.

Look at a chart of spot exchange rates. We are in an uptrend in CAD:USD. Trends do reverse, but I would wait for that to happen rather than betting against the trend before it reverses.
 

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Because people will turn to the USD as the "safe haven" while the other debtor nations are taken down first. Their time will come, though.

The fact that individual countries like Greece can't print money to defer problems like the US can is a good thing, imo.
 

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Discussion Starter #12
"Even a 1 year GIC at 2% is a better bet, in my opinion, than praying that CAD goes much below 0.98 in the short run."

sold @94.6! will buy again at $1.01.
 

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Personally i feel the US dollar is far more stable than the Canadian. The USA is a world power house, the usa dollar is used all over the world from Honduras to Cambodia. Canada's economy has always relied on the US. I feel some what confident that the Canadian loonie will continue it up and down, loonie behaviour.
From the news today;

Government Deficit as % of GDP:
Canada - 3.0% ; Greece - 8.9%; USA - 9.2%;

Net Government Debt as % of GDP:
Canada - 31.8%; Greece - 116%; USA - 121.7%

USA is a net importer of oil & gas
Canada is net exporter of oil & gas

CDN $ may be temporarily overpriced at par, but I think it's going to be a long temporary.
 
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