by winston » Wed Jul 13, 2016 8:12 am
The Loonie Takes Flight
By Karim Rahemtulla
This past weekend, I enjoyed lunch with the Canadian high commissioner to India and his lovely wife. We discussed various topics, including the resurgence of Canada as a destination for capital for the rest of the world.
In the aftermath of Brexit, and even in the days leading up to it, there was a surge of social media and search activity surrounding "moving to Canada" by those domiciled in Britain.
Americans have been conducting similar searches over the last few months...
For the most part, people merely fantasize about such things. Relocating to a different country is not easy and sometimes immigration rules make it tedious or even impossible. But Canada is a place that has familiarity and is much closer than far-flung destinations like Australia or New Zealand.
Most major English-speaking Canadian cities are a short flight away from major American population centers. Toronto is a 2 1/2-hour flight from Miami and Vancouver is about the same from Los Angeles.
Even driving up to Canada is pretty easy. The longest I've ever spent going through customs and immigration by car is about an hour. On most occasions it's taken less than 15 minutes.
Canada has even more to offer in terms of familiarity. English is the dominant language. Just about every U.S. chain store can be found there. The food is similar. Healthcare is modern and accessible and even cheap for residents, thanks to a universal healthcare system. And now, thanks to a strong U.S. dollar, Canada is also a fairly inexpensive destination for Americans.
Canada's appeal has not gone unnoticed. In my conversations with the high commissioner, he mentioned that applications for education visas from India, where he is based, have soared. Business ties are improving as the giant Asian country looks to the West for growth and investment and begins to shift away from the East.
India is not alone. The Chinese have been moving to Canada in droves, one of the reasons for the sky-high prices for real estate in Vancouver and now also in Toronto.
All of these trends point to a very good economic future for Canada and also for the Canadian dollar, or "loonie," as it is fondly called. From its 2011 high to its low earlier this year, the loonie has tumbled 36% against the U.S. dollar.
The loonie's crash has mirrored the collapse of commodity prices. But when it comes to currency, the world seems to think of Canada the same way it did in decades past.
It's true that Canada is a major commodities exporter. But a closer look at the country's exports shows that resources no longer dominate the picture, making up less than 20% of the country's GDP. For proof, you need to look no further than the oil price collapse.
If Canada was truly dependent on oil and commodities, then its economy would have tanked when oil prices crashed. The crash in other commodities like nickel, gold, silver, lumber, uranium, potash and a host of others would have sent the country plummeting into depression.
Yet none of that happened. In fact, over the past five years, Canada's economy has continued to grow. That's a testament to the diversification of the economy.
The Loonie Falls From the Sky
So it seems to me that the loonie is much cheaper than it ought to be. So I think it's a currency you should be accumulating if you are looking to diversify out of politically sensitive and economically vulnerable currencies.
The Canadian dollar looks to have established a trading range that should keep it between $0.68 and $0.77. Look to dips to buy the loonie as a bet on the long-term flow of foreign capital, qualified immigrants and a rebound in commodity prices.
One easy way to gain exposure to the Canadian dollar is to buy the CurrencyShares Canadian Dollar Trust ETF (NYSE: FXC). This ETF tracks the Canadian dollar's value against the U.S. dollar.
Now that the loonie has finally taken flight from its bear market lows, I expect it to continue moving much higher over the next couple of years.
Source: The Non-Dollar Report
It's all about "how much you made when you were right" & "how little you lost when you were wrong"