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Sunday, October 17, 2010

Canadian dollar - Hold on to your Loonies Canada!

The Canadian dollar went to parity last week for a short time before dropping back to the .99 cent U.S. range. It dropped another half cent later in the week to around .985 US.

This surge and short pull back can be easily explained in the context of the U.S. dollar. Essentially, it is dropping, like a stone, in the face of more quantitative easing (QE2) on the agenda of FED chairman Ben Bernake.


The Euro was spanked this spring and summer as countries from Greece to Portugal, Spain and Ireland hit near crises levels in their national debt and deficits.

Today, the Euro is back up over $1.40 usd, the Swiss Franc is a in the stratosphere and Japan and Brazil are fighting hard to keep the Yen and the Real at manageable levels as investments in their currencies inflate them beyond their true value.

Meanwhile, the Canadian dollar, the Australian dollar and to a lesser extent, the New Zealand dollar are gaining shooting upward as investors pour billions into natural resources from gold to oil, platinum, palladium, copper, potash etc.  As this phenomenon plays out, the Canuck buck continues to gain against the usd.
As I pointed out in several articles in early 2009, when the Can D was at .77 cents, I am saying it again!  That is " Hold on to your loonies"!

 During the 1950's and 60's the Canadian dollar traded in the range of $1.10 to the usd.  I am convinced it is headed there again.  The Canadian government is loath to consider this, and does what it can to stop the advance, but is is powerless in the face of QE2. In the U.S. Fed policy always favors inflation (hopefully in the 2% range) but never the less, inflation over deflation concerns

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The U.S. Federal Reserve is burning through dollars. As deflation becomes much more of a concern, the Fed will do whatever it takes to get the U.S. economy moving again, and the absolute, unprecedented flood of dollars into the system cannot but deflate the usd.

American big business isn't suffering!  They are essentially swimming in cash, but are not spending it, or hiring Americans (see: 41 million on food stamps) Big business hoards its cash at such times, and invests in resources and more businesses.

Understand, the Canadian dollar is not advancing, as is evidenced by its comparison to the Euro, Swiss Franc, Yen and Real in the past few months!  The U.S. dollar is declining.  Even after this brief stall in the decline, it will continue to decline, at the expense of other currencies and economies around the world. The massive Quantitative easing will see to that.

Besides having one of the worlds massive resource sectors, (gold, copper, potash, diamonds, oil, gas, gypsum, lumber, seafood, agriculture etc) Canadian banks are reaping the rewards of their well known stability, and buying up some American assets during this troubled time, and paying great dividends.


This is why the Canadian dollar will go to $1.05 to $1.12 in the not too distant future.  It will stay there as the Canuck buck slowly becomes more and more of a petro dollar, in the face of the expansion of the Alberta oil sands and other huge resource plays.

Hold on to your loonies Canada.  Its that simple.

HP
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