The Canadian dollar is currently down about 30% from its highs in 2007. And far from a negative, it means we’re facing a prime buying opportunity… and a market set to push it to new levels.
We don’t need the International Monetary Fund (IMF) to tell us how bad things are. We already know.
Along with the U.S., The Euro-zone and Britain are both victims of the sub-prime crisis, though the latter is in the worst shape of all. And with all of the money those countries involved have pumped into the system, commodity price inflation has nowhere to go but up in the long run…
…Which will drive the value of the Euro, the Pound and the U.S. dollar straight down, and their purchasing power right along with it.
But we expect just the opposite for their Canadian cousin. Since Canada is a major exporter of commodities like oil, lumber and metals, commodity priced inflation actually helps its currency.
Not to mention that Canada has shown greater fiscal responsibility in the past two decades than too many other countries out there. While other governments have racked up their deficits, Canada actually brought its federal debt down from 70% of GDP in 1995 to under 30% last year.
Currently, it’s actually running a small annual surplus, though this year the country will likely head into its first deficit in years due to the global slowdown.
That hardly means that it faces the same type of financial crisis the U.S. is suffering from. Canadian banks are sound, in large part because their residential market operated under completely different standards where sub-prime lending was much harder to come by.
And because they also didn’t have any significant or lingering exposure to the U.S. sub-prime lending market, those banks don’t have nearly as many defaults to worry about then their international counterparts.
