Canadian Dollar Could Strengthen Again


    As economic turmoil around the world starts to abate, it is not a stretch to believe the Canadian dollar will strengthen again, says Giulio Martini, chief investment officer of currency strategies with AllianceBernstein. Speaking on ‘Unappetizing Choices: Resolving the Canadian Investors’ Local Currency Dilemma,’ he said typically the Canadian dollar is sold off during times of market turmoil. This accounts for its recent slip after reaching record highs. However, the dilemma for Canadians who want to hedge their foreign holdings is that the “big four” currencies ‒ the U.S. dollar, Japanese Yen, British Pound Sterling, and the Euro ‒ are all in crisis and it is “hard to decide which one is worse.” Because the big four are so unattractive, the Canadian dollar is attractive as a global reserve currency. However, the attractiveness of the Canadian dollar is limited by the central bank’s inability to raise interest rates and its large current account deficit. For investors who want to hedge, they should avoid the Euro and the Pound among the big four. Or, they can switch to small country currencies and take a market neutral approach using a basket of these currencies.