Canada vs Us Dollar History
Canada vs Us Dollar History
Good afternoon, It’s the time of month again. Time to make a purchase. I need more U.S exposure as well as a position in technology for the dividend portfolio. The purchase of U.S tech stocks would as Ricky from Trailor Park Boys says – “Get 2 birds stoned at once” The problem we have as Canadian’s is our Canada vs the US Dollar. Currently 1 dollar Canadian equals .74 cents U.S. This got me thinking about the currencies so lets look at the history.
Long Term Chart
Last 17 Years
I came across these graphs, seems we are give or take ten cents from the bottom. Too bad I wasn’t much of a investor when we were at par or even above par. If I were receiving U.S dollars for my pay cheque I would be eating these Canadian Stocks up! The Canadian dollar is known as a commodity currency. When commodities are doing good the Canadian dollar generally go’s up.
There Are so many factors that influence the current exchange rate – Canadian Economic Growth, The Interest Rate Differences between the Countries, The difference in Inflation rates, Countries account balance, world commodity prices, the world economy, fear (U.S dollar is viewed as the safest currency) and investor sentiment.
From what I understand most world currencies gained in value relative to the us dollar in the 2000’s. In the 90’s people were spooked after the Asian financial crisis which started in Thailand and bought u.s dollar securities. The United States was also on a tear in the 90’s and people were making more money. They started importing more then they were exporting and had to raise funds in order to continue to buy imports, it does so by selling assets such as government bonds and private sector equities, as well as by direct foreign investment in US physical assets such as machinery, plant and equipment. Most economists think the u.s currency was overvalued in the 2000’s hence the correction.
The Last Crash
I think the global financial crisis of 08/09 made people flock into the “safe” currency again and the Canadian dollar tanked relative to the value of the us dollar. Shortly after as the world recovered, commodities were in high demand and the dollar started increasing in value. A lack of confidence in the U.S dollar had people selling and converting to Canadian securities to get on board the commodity train!
Since 2011 the Canadian dollar has been slowly going down relative to the U.S dollar. I don’t really understand why, although the U.S federal deficits have declined sharply down from 10% of gdp in 2009 to 3.2 of gdp in 2016 and projected 2.6% this year. Of course the increase in interest rates in the U.S is a big factor and they plan on having 2-3 more increases this year. Trump seems to be really boosting the U.S economy with what tax plans and more in house jobs.
Will Canada follow suit? I really don’t know, I think our housing market is carrying the economy currently and with Canadian’s at all time high debt levels a slight increase could seriously hurt some people. I would think we will raise it maybe a quarter percent since we don’t want the loonie to fall to much. When certain commodities pick back up I think the dollar will increase but I don’t see oil going up much soon.
What Are You Doing?
Would you bite the bullet and just buy the U.S stock you want ignoring the current exchange rate? The dividend will be in U.S dollars so that’s nice. Currently if I convert my 1400 dollars to U.S, I would get $1039. Or would you buy a Etf with exposure to the S&P 500? I believe if Trump stays off twitter and stops “poking the bear” the U.S dollar will only increase. If he keeps poking scary times are ahead of us.
What are your thoughts?
Hey I’m Rob, creator of Passive Canadian Income.
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Thanks for the history lesson. While I don’t really follow currency so much, I do get exposure to it living so close to the great white north. I remember the days of the Canadian dollar being higher than US and both are usually fairly equal give or take 10 cents. Sounds like your telling me I need to take my next trip to Windsor! lol jk.
haha I’m no history professor.
My sister lives by windsor, says there’s a good indoor water park there =)
I think CAD will go up in the next few years. Commodity producing countries’ currencies should do well as commodity prices rise, so CAD and AUD will probably rise.
Hey Troy, I definitely agree. Its all cycles. So would you buy a Canadian etf or make the conversion and buy the stock?
Why not use a CAD hedged ETF?
The S&P 500 Index (CAD-Hedged) is a market-capitalization-weighted index that is designed to represent the returns of large-capitalization U.S. stocks, with the U.S. dollar exposure of the securities included in the S&P 500 Index hedged to the Canadian dollar.
Yeah sorry that’s basically what I was talking about. Would you buy this or make the conversion to own the individual stock.
Hola, I did not realize you were talking about hedged version. There are two vanguard ETFs
1) VSP S&P 500 Index ETF (CAD-hedged)
2) VFV S&P 500 Index ETF
Hence when you mentioned ETFs, i thought you meant (2)
Given the conversion rates, I would hedge.
Disclosure: I am huge fan of Vanguard. I like to own ETFs as opposed to stocks.
Hey thanks. You and leo sent me a couple to look into I think on my April post. Looking into them now. Thanks again
Might be a noob question but if I owned vsp would I get charged the 15% withholding tax since it’s not a us etf?
I don’t know much about taxation in Canada. Here is what I found:
Canadian ETF that holds a US-listed ETF of US stocks.
Vanguard US Total Market (VUS and VUN)
Vanguard S&P 500 (VSP and VFV)
iShares S&P 500 (XSP and XUS)
In a taxable account, US withholding taxes apply, but are recoverable.
In an RRSP or TFSA, US withholding taxes apply and are not recoverable.
Thanks alot geek!
I do wonder with Europe being a mess with Brexit and whatever other countries that decide to leave the EU if the US dollar will continue to be strong at the detriment to other nations. At least a strong US dollar means oil should be low for awhile 🙂
It seems like there is alot of factors currently that could change the value quite drastically atm. As for the oil prices our provincial government has us so bent over we are basically paying the same price as when oil was over 100$ a barrel. Tax tax tax. Dam liberals!
Firstly, for a small initial investment, I think that buying XSP would allow you for get exposure to the US market without the currency risk.
Secondly, depending on what account type that you have. I have a margin account and I use it to hedge the currency risk. When the loonie was above par, I bought the USD. Now that it’s a lot lower, I repatriate my money. If I want to own more US stocks, I just use my USD margins to buy the stock without converting my CAD to USD.
hey Leo, I was really looking into xsp but came across a couple posts stating that Canadian hedged etfs tend to lack in returns vs normal etfs. I just bought a position in ZDY. Seems like a great dividend us etf with a monthly payout. (Im probably a little biased, but I found a lot of etfs paid out in March. That’s my highest dividend month and would like to get jan and feb over 100$ as well) After I increase my position in zdy I think I will get a position in xsp to learn and analyze a little more. Either way you, Troy and geek have been pushing me to some US exposure and I’m finally establishing one thanks to you guys!