Canadian Dollar thoughts:
Back in late 2004 I made a mid size investment in a private placement in Canada. The investment returned 200% when the company was bought prior to the IPO. The bonus win has been the value of the Canadian Dollar in these 3 years. I'm using it as a hedge against the US dollar and at the moment get 7% interest on the money. My question is: Will the Canadian dollar remain strong, have additional up-side or will it play out according to:
'JPMorgan's currency fair-value model, which includes factors such as terms of trade, productivity growth, inflation, trade openness and interest rates, suggests the loonie will decline to about 62.50 cents in five years.
Here's how. Oil prices are trading well above what fundamentals justify and are ripe for a steep decline, the bank believes, which will cause Canada's terms of trade to deteriorate.
The U.S. dollar, meantime, will start to recover, and investors will flock back to the currency. Broad-based U.S. dollar weakness has been a principal reason for the Canadian currency's appreciation this year.
The main factor, though, may be Canada's lagging productivity.
"Historically - and this might be changing now with oil - but historically, the one that's played the greatest role is productivity growth differentials between Canada and the U.S.," said Rebecca Patterson, global currency strategist at JPMorgan.
Determining a currency's direction is notoriously difficult and Ms. Patterson stressed that no one can predict any currency's precise level in five years time. However, she said, "we use this five-year forecast to get an idea of the degree and the direction of a possible move."
The forecast is particularly useful for long-term investors or U.S. companies that may be planning to buy real estate and set up shop in Canada, she said. '
any C$ thoughts for the weekend? TIA
