While I’ve been screaming about Australian Dollar parity, the Canadian Loonie has launched a stealth attack against the Almighty Dollar. After achieving parity on the 20th September, it’s rallied almost 10% since then. Today it hit $1.09 in after-hours trading.
But I’m not complaining. Last month I received over $440 from Canadian Royalty Trusts. As the US Dollar keeps dropping, my income from the Trusts keeping increasing! (Although in theory, since they sell oil and gas which are priced in US dollars, a strengthening of the Loonie squeezes their profit margins. But lets ignore that fact since oil is near $100/barrel and I expect gas prices to start creeping up too).
But before you start buying up CurrencyShares Canadian Dollar Trust (FXC) in excitement, you should consider that a strong Loonie is bad for the Canadian economy. Their exports are more expensive to foreigners which is a problem since they export a lot. And the strength of their currency is causing Canadians to drive south across the border in US and spend their money here! (Which funnily enough, is great for us).
U.S. analyst Dennis Gartman, who was among the first to predict the loonie’s ascent past parity five years ago on the simple premise that Canada “has stuff the world wants,” said the Canadian currency is now on such a roll that it may be difficult to reverse quickly.
“The Canadian dollar is like an aircraft carrier and you can’t stop that on a dime, it’s got a lot of momentum. It’ll stop when one of your major exporters closes shop and says he can’t compete anymore.”
Gartman has disagreed with critics of the high dollar, saying that in the long run a strong currency is good for Canada because it will force businesses to compete in the world despite the high currency.
However, he is not long the Canadian dollar and predicts any rise above US$1.10 will be unsustainable.
But I’m still long the Australian Dollar and I expect it to achieve parity within the next 12 months.