USD vs CAD for Canadians

ValeryN

ValeryN

Interested to hear what people think is best long term for Canadians.

Assuming we're optimizing for purchasing power of money in Canada.

For example -
  1. Keeping money in some 50/50 split?
  2. Keeping all in one currency?
And what are driving forces behind that pair? Are they typically the same or been different over last 10-20 years?

I am pretty naive when it comes to currencies. And you can safely assume I just know nothing about them. From just a normal person point of view - when I moved to Canada about 10 years ago USD/CAD were used interchangeably. Seemed like it made sense. But then, eventually, USD shot up to gaining 50% more purchasing power in Canada. And going anywhere with Canadian money almost felt like a rip off. At some point when it started raising I converted most money into USD when USD/CAD was ~1.10 USD. Rationale was - USD "seemed" to be perceived as world's currency and it looked logical that keeping money in it will provide better purchasing power. I sold some near few years top as it "seemed" like their spread was getting too far

But those are all silly and uneducated reasons. I would like to hear more experienced people experience on what do you think is driving that pair and how to best preserve purchasing power across North America.

PS. Let's keep investment & "making money work" component out of this. I really wanted to focus on understanding that particular topic in question.

Val
 
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The CAD is at present highly correlated to Copper and the US equity markets. (>95% Daily Close)

From about 2008-2015 the CAD was highly correlated to the WTI Crude Oil contract - less so now, as the positive correlation is about 85%.
 
The CAD has a positive 96% daily close correlation to the Euro, and a negative 98% daily close correlation to USD.

I think that you should look at the Euro currency for queues on CAD behavior.
 
ValeryN said:
Interested to hear what people think is best long term for Canadians.

Assuming we're optimizing for purchasing power of money in Canada.

For example -
  1. Keeping money in some 50/50 split?
  2. Keeping all in one currency?
And what are driving forces behind that pair? Are they typically the same or been different over last 10-20 years?

I am pretty naive when it comes to currencies. And you can safely assume I just know nothing about them. From just a normal person point of view - when I moved to Canada about 10 years ago USD/CAD were used interchangeably. Seemed like it made sense. But then, eventually, USD shot up to gaining 50% more purchasing power in Canada. And going anywhere with Canadian money almost felt like a rip off. At some point when it started raising I converted most money into USD when USD/CAD was ~1.10 USD. Rationale was - USD "seemed" to be perceived as world's currency and it looked logical that keeping money in it will provide better purchasing power. I might have sold something near few years top as it "seemed" like their spread was getting too far

But those are all silly and uneducated reasons. I would like to hear more experienced people experience on what do you think is driving that pair and how to best preserve purchasing power across North America.

PS. Let's keep investment & "making money work" component out of this. I really wanted to focus on understanding that particular topic in question.

Val
More...

Just follow the USD/CAD charts, BNN Bloomberg and CNBC or U.S. Bloomberg. I'm a U.S. citizen and bought my first home in Canada around January 1999 and then a condo around January 2002 with U.S. Dollars to get a huge discount on the properties when the exchange rates were above 1.50

I was starting to look into buying a RV when the Pandemic hit but couldn't make my mind up while it shot above 1.40 but the borders closed and I hesitated...now its around 1.28 :banghead:

Currently, I'm about 60 / 40 but was 75 / 25 at the start of the Pandemic. If they get closer to par with each other...I'll be increasing my Canadian dollar and spending more time in the United States in my home there.

You need to talk to your investment advisor and bankers in both countries...regularly if you plan to move funds back in forth in large amounts or make large cost purchases to take advantage of major changes in the movements in the USD / CAD.

Factors impacting the USD:
  • Interest rates set by the Federal Reserve (the “Fed”)
  • Gross Domestic Product (GDP) growth rates
  • Unemployment rate
  • Money supply and the printing of money by the Fed
  • International trade agreements, tariffs, and duties
  • Balance of payments
  • Budget deficit and total national debt
  • Political events
  • Entitlements (Social Security and Medicare)
  • Consumer savings and household income rates
  • And many more factors (read about 50 different factors)
Factors impacting the CAD:
  • Commodity prices (oil, potash, zinc, and others)
  • Bank of Canada (BoC) interest rates
  • Employment rate and job creation
  • Budget deficit and national debt levels
  • Politics and international policies
  • The quality of Canadian and US relations
  • Read more: history of the Canadian dollar
https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/us-to-cad-currency/

Forecast below:
canada-currency@2x.png


The above not advice...talk to your banker and financial advisor in both countries.

Note: Watch the EuroDollar for more clues...I have a bank in France too. Therefore, you should be monitoring the EUR / USD / CAD...its what I do to move funds back n forth between my banks from the three.

wrbtrader
 
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What’s the best way to hedge a further decline in USDCAD? Has anyone used the USX currency options on the Montreal Exchange as a way to hedge? There doesn’t seem to be a lot of volume or OI so not sure if many people use this.
 
wrbtrader said:
Just follow the USD/CAD charts, BNN Bloomberg and CNBC or U.S. Bloomberg. I'm a U.S. citizen and bought my first home in Canada around January 1999 and then a condo around January 2002 with U.S. Dollars to get a huge discount on the properties when the exchange rates were above 1.50

I was starting to look into buying a RV when the Pandemic hit but couldn't make my mind up while it shot above 1.40 but the borders closed and I hesitated...now its around 1.28 :banghead:

Currently, I'm about 60 / 40 but was 75 / 25 at the start of the Pandemic. If they get closer to par with each other...I'll be increasing my Canadian dollar and spending more time in the United States in my home there.

You need to talk to your investment advisor and bankers in both countries...regularly if you plan to move funds back in forth in large amounts or make large cost purchases to take advantage of major changes in the movements in the USD / CAD.

Factors impacting the USD:
  • Interest rates set by the Federal Reserve (the “Fed”)
  • Gross Domestic Product (GDP) growth rates
  • Unemployment rate
  • Money supply and the printing of money by the Fed
  • International trade agreements, tariffs, and duties
  • Balance of payments
  • Budget deficit and total national debt
  • Political events
  • Entitlements (Social Security and Medicare)
  • Consumer savings and household income rates
  • And many more factors (read about 50 different factors)
Factors impacting the CAD:
  • Commodity prices (oil, potash, zinc, and others)
  • Bank of Canada (BoC) interest rates
  • Employment rate and job creation
  • Budget deficit and national debt levels
  • Politics and international policies
  • The quality of Canadian and US relations
  • Read more: history of the Canadian dollar
https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/us-to-cad-currency/

Forecast below:
canada-currency@2x.png


The above not advice...talk to your banker and financial advisor in both countries.

Note: Watch the EuroDollar for more clues...I have a bank in France too. Therefore, you should be monitoring the EUR / USD / CAD...its what I do to move funds back n forth between my banks from the three.

wrbtrader
More...

Sounds like you decisions were timed quite well, and I appreciate you sharing this.

Historically the range been 0.9-1.6 from 1994. So I did feel like recent 1.4-1.5 was "pushing it" and converted some back to CAD. In the retrospect it seems smart by being a systematic trader I don't feel there is enough data to make it a correct decision, statistically speaking.

That "range" might not hold up in the future, that's why I wanted to dig a bit at what's driving that pair and a possibility of that range being broken.

Looking forward to what everyone else has to say. That will give me more clues where to dig.

What likely is gonna happen - I'll get some good quality data and will try to come up with some hedging strategy that doesn't trade too much. Might use futures to avoid using much margin for that.

PS. Conversion of large sums of money is not a problem as I do it at IB with rates order of magnitude better than bank's.

upload_2020-12-3_19-21-50.png
 
Lpw54 said:
What’s the best way to hedge a further decline in USDCAD? Has anyone used the USX currency options on the Montreal Exchange as a way to hedge? There doesn’t seem to be a lot of volume or OI so not sure if many people use this.
More...

When it comes to actually executing - I just buy/sell USDCAD with IB. Probably the best rates.

It is a bit more tricky if need a hedge while keeping local currency to avoid conversion if equities are traded on the same account. Let's say - I trade US Stocks and will have extra charges if my account would not have USD for those trades. So I have to keep it in USD to avoid that. But if I want to preserve buying power in CAD then something else would have to be used to keep that as hedge position, preferably with lowest margin impact possible to not hinder equity trades much.

Will be also interested to hear what others do.

Val
 
Well all is going to depend on oil prices. Canada is a small, open resource economy that is largely dependent on oil. If oil price shoots up, CAD is going to shoot up otherwise CAD will always be cheaper than USD. But with US keeping the interest rate so low to deal with the pandemic, I am seeing an erosion of USD/CAD exchange rate. So if you can, try to exchange USD into CAD from time to time especially if you are in Canada and actually uses CAD. Once this covid crap blows over and the economy recovers though, I would expect USD will start to appreciate more.
 
bone said:
The CAD is at present highly correlated to Copper and the US equity markets. (>95% Daily Close)

From about 2008-2015 the CAD was highly correlated to the WTI Crude Oil contract - less so now, as the positive correlation is about 85%.
More...

USD is highly correlated to the US equity markets right now cuz it's perceived as a safe-haven currency. If US equity market is doing badly, USD will appreciate otherwise it will tank. I think this correlation will reverse once this covid situation stabilizes.
 
ValeryN said:
When it comes to actually executing - I just buy/sell USDCAD with IB. Probably the best rates.

It is a bit more tricky if need a hedge while keeping local currency to avoid conversion if equities are traded on the same account. Let's say - I trade US Stocks and will have extra charges if my account would not have USD for those trades. So I have to keep it in USD to avoid that. But if I want to preserve buying power in CAD then something else would have to be used to keep that as hedge position, preferably with lowest margin impact possible to not hinder equity trades much.

Will be also interested to hear what others do.

Val
More...

The best way to hedge is with currency futures but they are so illiquid and so expensive.
 
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