Should a strong Canadian dollar affect your investment strategy?
Our interest rates in Canada are higher than those in the U.S., our country is fiscally strong, and our commodities are in demand globally. The result is a strengthening Canadian dollar relative to its U.S. counterpart, which is welcome news if you’re crossing the border to shop or vacation in the Sun Belt.
But how does the exchange value of our currency affect your investments?
The long and the short of it
In the short term, our strong dollar is a drag on returns. We lose on the currency exchange when the value of U.S. and certain foreign equities is converted back into Canadian dollars, diminishing any gains.
For longer-term investors, however, the higher value of our currency offers an exceptional opportunity. A stronger Canadian dollar can buy more foreign investments for less money, creating potential opportunity to improve portfolio value over the long term.
Keep in mind, if you have a global mutual fund that invests in numerous countries, exposure to a basket of currencies offers some protection against currency fluctuations. In addition, don’t overlook the fact that the Canadian stock market owes much of its strength to this country’s strong fundamentals and favourable commodity prices.
Risk goes down as time goes on
Currency movements generally tend to even out over the long term. So a well-diversified portfolio that includes global investments may be all the protection you need. We can help review your investment strategy in light of the strong Canadian dollar.
We’re also here to help answer any questions you may have about currency risk.