High US Dollar

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InvestorNewb
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High US Dollar

Post by InvestorNewb »

Hello,

For many years I earned USD$ in Canada thanks to my business. I kept the majority of that money in USD.

I am pleasantly surprised that as of today, each USD$ is worth $1.2318 CDN. Most of the money is invested in US ETFs. Would it be wise to convert some of that money to CAD or just "let it be"?

I don't really want to sell any of my US ETFs for their CDN counterparts, as it would involve paying taxes on the capital gains. I'm in it for the long-haul but I would hate to see $1 USD = $1 CAD again (or potentially less).
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
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Re: High US Dollar

Post by SQRT »

Pretty hard to predict where FX rates are going, especially over an extended period. Do you have any natural need for USD? If not you might want to take a little off the table now?
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Re: High US Dollar

Post by InvestorNewb »

SQRT wrote:Pretty hard to predict where FX rates are going, especially over an extended period. Do you have any natural need for USD? If not you might want to take a little off the table now?
I kept the money in US$ all these years in the hopes that it would go back up again. Here we are at a very reasonable exchange.

The only need I have for US$ right now (and it is a big one) is for my US ETFs. Their expense ratios are lower than their Canadian versions. The Canadian versions also didn't exist when I began investing.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
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Re: High US Dollar

Post by SQRT »

Well, hard to have it both ways. Either you keep the USD ETF's or you sell some and repatriate to CDN. I suspect the FX markets are over reacting as per usual. Good problem to have.
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Re: High US Dollar

Post by scomac »

I for one am glad that we have some USD income. We have always maintained a fairly reasonable balance in USD savings to cover trips and the like, but up until recently had been paying in CAD due to the favourable exchange rate. I suspect that by the time we return from Florida, our USD saving are going to be pretty much depleted, so I'm actually wishing I had a bit more USD income than we currently have. Last fall, I moved a portion of our USD assets back to CAD when the dollar broke through $.90. That's now looking to be premature based on income needs as much as exchange rate.
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Re: High US Dollar

Post by ig17 »

InvestorNewb wrote:The only need I have for US$ right now (and it is a big one) is for my US ETFs. Their expense ratios are lower than their Canadian versions. The Canadian versions also didn't exist when I began investing.
Switching from VTI to Canadian-based CAD-denominated US equity ETFs doesn't change your currency exposure.
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Re: High US Dollar

Post by SoninlawofGus »

SQRT wrote:Well, hard to have it both ways. Either you keep the USD ETF's or you sell some and repatriate to CDN. I suspect the FX markets are over reacting as per usual. Good problem to have.
Or move to other other international investments. The Euro is way down as well against the USD, though a big bounce against the CDN today.
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Re: High US Dollar

Post by Flaccidsteele »

InvestorNewb wrote:Hello,

For many years I earned USD$ in Canada thanks to my business. I kept the majority of that money in USD.

I am pleasantly surprised that as of today, each USD$ is worth $1.2318 CDN. Most of the money is invested in US ETFs. Would it be wise to convert some of that money to CAD or just "let it be"?

I don't really want to sell any of my US ETFs for their CDN counterparts, as it would involve paying taxes on the capital gains. I'm in it for the long-haul but I would hate to see $1 USD = $1 CAD again (or potentially less).
When I first read this post, I checked my currency app and saw the US dollar at $1.21 Canadian dollar so I thought that you were mistaken. Then, after Poloz opened his mouth it pretty much dropped to the level that you posted. You should be a soothsayer. Nice call! :thumbsup:

Anyway, back to your question. I just have a question about for what purpose you would want to convert the US dollars to Canadian dollars? If there's no purpose, I would just "let it be".

I have over $2m in US dollar-denominated assets and my monthly rental income is in US dollars as well. Currency issues for a long-term investor is just a wash anyway. Only speaking for myself, I wouldn't worry about it.

Edit: I just read this:
InvestorNewb wrote:The only need I have for US$ right now (and it is a big one) is for my US ETFs. Their expense ratios are lower than their Canadian versions. The Canadian versions also didn't exist when I began investing.
If that's your only need for US dollars, then in my opinion, I wouldn't worry about it. Specifically, I wouldn't convert currency simply to continue chasing an investment in a foreign country. Just stick to your plan. Unless, of course, your plan originally called for converting a % of your money into foreign currency when certain currency ratios are hit. I just don't have a plan like that.
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Re: High US Dollar

Post by scorpionman »

I have the same issue. Of course the Canadian dollar can continue to weaken to 1.4 or 1.5 as it did before and then one would feel awkward converting all of it today. I take a measured approach and convert a set amount as it decreases from US to CDN. Usually I try to match my living needs in Canada. However, Canadian dollars are only really good if you live in Canada, if you want to live elsewhere it will be wasteful to convert. Also converting implies you expect to produce a gain on the non-living expense portion once the trend reverses (i.e. US weakens against Canadian). This may be a long time from now but one has to make decisions in real time.
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Re: High US Dollar

Post by AvidSaver »

Look for a good rate, try not to get too caught up with getting the best rate. Nobody can predict the future, and if FX isn't your area of expertise, you have very little chance.

Convert when the USD reaches something your happy with. You seem happy with the $1.23 range, so you can hedge something by converting a bit now.

FWIW, I think in the September-December period we'll see $1.28-$1.30 get touched.
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Re: High US Dollar

Post by Flaccidsteele »

AvidSaver wrote:FWIW, I think in the September-December period we'll see $1.28-$1.30 get touched.
I guess we're going to see it now.

A couple of nice calls on the Canadian/U.S. dollar pair in this thread. I wish I had that skill. Kudos.
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Re: High US Dollar

Post by scorpionman »

Do you think it will go back to $1.5 to the US dollar? It's getting mighty expensive to live outside Canada now with the currency. On the other hand, foreigners should be happy to spend time here with the lower costs...
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Re: High US Dollar

Post by ghariton »

Aislin
aislinweb-071615ca.jpg
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Re: High US Dollar

Post by kcowan »

The C$ tends to follow the price of oil, staying in lockstep at a 78% correlation as shown in the following graph:
Oil-Price-to-C$ correlation.jpg
You can see that large spikes in the oil price like in late 2007 tend to have a somewhat dampened response from the C$.
So now we are experiencing a large spike in the opposite direction and can expect another dampened response.
But the downward trend will continue.

And with the potential addition of Iranian oil to an already oversupplied market, this downward trend is expected to accelerate.

(Unless an expanded OPEC group can again influence available supply. But this would mean adding frackers to the mix!)

Source article

So in conclusion, stay in USD until you see oil prices spiking up again. Then decide whether you want to hold Euros or Drachmas instead! :lol:
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Re: High US Dollar

Post by ghariton »

kcowan wrote:So in conclusion, stay in USD until you see oil prices spiking up again. Then decide whether you want to hold Euros or Drachmas instead! :lol:
I'm always surprised that people have accepted the desirability of diversifying across asset classes and across different assets within each asset class. But very few diversify across currencies. To the contrary, there is a tendency to hedge (which really amounts to concentrating one's investment -- and risk -- into the home currency).

For me, the attraction of investing in foreign securities is, in part, the currency diversification that results.

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Re: High US Dollar

Post by kcowan »

ghariton wrote:For me, the attraction of investing in foreign securities is, in part, the currency diversification that results.

George
But practically, there are relatively few currencies that you can invest in: Euros, USD, C$, MXP and maybe some country indices?

Do you hold anything in rubles, yuan, et al? How about Argentina, Brazil and Chile?
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Re: High US Dollar

Post by ghariton »

kcowan wrote:But practically, there are relatively few currencies that you can invest in: Euros, USD, C$, MXP and maybe some country indices?

Do you hold anything in rubles, yuan, et al? How about Argentina, Brazil and Chile?
I don't hold any foreign currencies directly, apart from a few USD for our next trip. But I do hold VTI, VEA and VWO. These are all unhedged -- as far as I know -- and so give me exposure to a broad variety of currencies.

I carefully avoid ETFs that are hedged into CDN.

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Re: High US Dollar

Post by InvestorNewb »

I was recently thinking about this thread now that 1 USD = 1.2960 CAD.

I did not sell any of my USD after making this post in January 2015, although now it is even more tempting. I will most likely "hang in" for the ride, since selling would mean paying taxes on capital gains...

A good problem to have. :D
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
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Re: High US Dollar

Post by Flaccidsteele »

I've been indoctrinated to believe that over long time horizons, differences in currencies ironed itself out and that hedging was a waste of effort and money. If this is true, I'm not sure there's any point for me to diversify across various currencies.

However, having said that, I was also brainwashed to believe that the U.S. economy and USD were superior to the Canadian economy and the CAD which is why most of my investments are in the former.

Diversifying across different assets, however, seems unavoidable as downturns don't always involve the same asset repeatedly.
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Re: High US Dollar

Post by ghariton »

Flaccidsteele wrote:I've been indoctrinated to believe that over long time horizons, differences in currencies ironed itself out
Only if you chop a couple of zeros off one of them.

Eve two major currencies such as the US dollar and the GB pound have seen dramatic changes in exchange rate since World War II.

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Re: High US Dollar

Post by Flaccidsteele »

ghariton wrote:
Flaccidsteele wrote:I've been indoctrinated to believe that over long time horizons, differences in currencies ironed itself out
Only if you chop a couple of zeros off one of them.

Eve two major currencies such as the US dollar and the GB pound have seen dramatic changes in exchange rate since World War II.

George.
The graph makes it appear that I would need to be terribly unlucky for those fluctuations to have a meaningful impact on my portfolio. Most of those years the ratio seems to float between 0.5 and 0.7. Only speaking for myself, I wouldn't concern myself with that. But it may definitely be worthwhile for others.

I also looked at the USD/CAD pair and found that to be very interesting. It appears that the vast majority of the time the ratio is above 1.0. Being relatively young, I didn't know this. I had adopted my USD-centric approach from pro-US authors.

Couple that with what happened in 2008-2010, it seems even more overwhelming that everybody in Canada should have been buying US assets. Considering the currency pair and what was happening in the market in those years, that was literally a once-in-a-lifetime event.

The only other time where it was similar (i.e. the CAD was strong and the markets were tanking) would be the mid 70s when I was in kindergarten.

For me, a best-case-scenario going forward investing-wise, would be Canada to have a systemic economic collapse in the coming years, and having the USD/CAD pair float between 1.2 and 1.5 (where it typically seems to find itself since the late 70s).
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Re: High US Dollar

Post by SoninlawofGus »

Flaccidsteele wrote: Couple that with what happened in 2008-2010, it seems even more overwhelming that everybody in Canada should have been buying US assets. Considering the currency pair and what was happening in the market in those years, that was literally a once-in-a-lifetime event.
That's the problem with charts. Looking back, it's obvious that everyone should have been buying USD, but hardly anyone was it seems. The media was talking about the CDN dollar heading to 1.50. The US was in a state of collapse and Canada was riding high. I wonder how many people on this board were buying more USD at that time. I was, but not nearly enough. The flip side is when will the CDN go too far too quick? I don't think we're there yet, but I obviously don't know what I'm talking about. :lol:
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Re: High US Dollar

Post by kcowan »

The recent reduction in the bank rate should accelerate the decline of the C$. This is one way to make sure that houses prices remain competitive for international buyers.
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Re: High US Dollar

Post by NormR »

Flaccidsteele wrote:I've been indoctrinated to believe that over long time horizons, differences in currencies ironed itself out and that hedging was a waste of effort and money. If this is true, I'm not sure there's any point for me to diversify across various currencies.

However, having said that, I was also brainwashed to believe that the U.S. economy and USD were superior to the Canadian economy and the CAD which is why most of my investments are in the former.

Diversifying across different assets, however, seems unavoidable as downturns don't always involve the same asset repeatedly.
Here's a quick graph I recently cobbled together showing the returns of the S&P 500 in CAD and USD. I had to check the starting / ending FX rates just to make sure I wasn't goofing up ;)
S&P 500 Total Return in CAD and USD
S&P 500 Total Return in CAD and USD
I generally don't bother with currency hedging. Sometimes it makes you look brilliant and on other occasions the opposite. Personally, I'd rather avoid the costs of hedging.
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Re: High US Dollar

Post by pmj »

NormR wrote:Here's a quick graph I recently cobbled together showing the returns of the S&P 500 in CAD and USD. I had to check the starting / ending FX rates just to make sure I wasn't goofing up ;)
For reference, does this represent, for example, investing $1000/year over ## years?
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