AM 1150 Kelowna - Radio Rallies & Reversals

David Rosenberg says:

"Two-years ago, the Canadian dollar approached par as oil was about to hit $140 a barrel. In the latest go-around, the loonie approached par with oil nearing $80 dollars. In other words, the Canadian dollar was behaving strictly as a commodity currency back in 2007 and 2008 (in both directions). But this rally in the Canadian dollar has a different feel to it; it’s much more than just a commodity story this time around.

It was fascinating to see the Canadian dollar only correct down to 92 cents during this most recent round of global financial turbulence and flight-to-safety. That is a far cry from the correction down to 78 cents following the Lehman aftershock, not to mention the move down to 62 cents after the tech wreck a decade ago.

At the current time, the Canadian dollar is moderately overpriced but the fair-value line is moving up two to three cents a year, which means that within the next half-decade, it could easily be worth 15% more than it is today. This is something for global investors in general and Americans in particular to contemplate for in any given year, half of the total return differential between Canada and the U.S., whether it be in stocks or bonds, is derived by the direction of the exchange rate.

For the birdwatchers among us, this may well be the time when the loon beats up on the eagle."

GB