Kingsmill's Investment Miscellanea: Friday May 21st, 2021

May 21, 2021 | Joshua Kingsmill


Key Takeaways

  • CAD/USD$ is at a 5 year + high
  • A combination of commodity price increases, and relative U.S. dollar global issues help explain this
  • It’s certainly not the policy of Canada, however, to have a persistent high dollar, as it greatly affects our exports

A short one this week, into the long weekend:


With most of the snow-birds back in Canada and a general inability to travel, the relative strength of the Canadian dollar, is probably a little less appreciated. At above $0.83, this is the highest it’s been in over 5 years.



There are four reasons for this relative rise:

  1. Historically, there has been a strong correlation between commodity prices and the CAD$. As oil and copper prices rise, we normally see the Canadian dollar rise. Canada’s economy relies heavily on its natural resource exporting.
  2. The Bank of Canada, based on stronger GDP forecasts, signalled that it planned on hiking interest rates closer to the second half of 2022 rather than in 2023. So far, the U.S. is taking a "wait and see" approach. Should interest rates rise quicker in Canada than in the U.S., the CAD$ would appreciate.
  3. Generally, the U.S. dollar has weakened across all currencies, not just Canada: this is mainly a function of the rest of the world also showing promising growth, so there is less demand for US dollars globally
  4. Though disappointing when compared to other countries, Canada's vaccine campaign has also helped. (LINK). On this last point, some have touted the increase in Canadian vaccination vs. U.S., failing to mention that these stats are comparing one dose in Canada to the two that the U.S. population has administered. Seems like “manufactured” facts.

While its great for those who travel to the U.S., as this big leap in the Canadian dollar has increased the purchasing power of Canadian consumers who are either buying goods that are made abroad or who are looking to travel abroad, it has made life much, much more difficult for exporters who are looking to sell goods abroad.


I’m often asked about the current exchange rate. I point to what our Bank governor says: “If the dollar were to continue to move — particularly if it’s not reflecting good developments for Canada — that could become more of a headwind. If it moves a lot further that could have a material impact on our outlook and it’s something we’d have to take into account in our setting of monetary policy.”


This is a fancy way of saying that its not likely that the Canadian Dollar will continue to appreciate!


2 golf predictions this week. First my family is hosting the Women at my resort, the Kingsmill River Course (LINK). Canadian Brooke Henderson is a lock to win that one. And on the men’s tour, Rory McIilroy is going to win.


Enjoy the long weekend.


P.S. Sadly, there is no family connection to the Kingsmill Golf Resort in Virginia, but that too is on the bucket list: I am sure they will give me a nice table at the Clubhouse when I make a reservation!