Loonie Power cuts both ways

Over the past year, the Canadian dollar — the loonie — is doing well relative to the U.S. dollar and many other major global currencies.

Over the past year, the Canadian dollar — the loonie — is doing well relative to the U.S. dollar and many other major global currencies.

But for Canadians with foreign mutual fund investments, a rising loonie can have negative consequences – unless you ignore the current currency volatility and stay the course for the long term. Here’s why.

Historically, the Canadian dollar has had many ups and downs against its U.S. counterpart. In 2002, the Loonie hit a low of 61.79 cents followed by a climb to parity and beyond.

Oil is a major reason why the Loonie has appreciated. Historically, the Canadian dollar is highly correlated with the price of oil. Canada is a significant oil supplier and as demand (and crude prices) increase, the demand for Canadian dollars increases as more must be purchased to pay for this commodity.

For Canadian dollar investors with international investments, the ascent of the loonie has meant a portion of returns generated by global indexes have not been fully realized. Even though Canadian investors buy units in foreign investments with Canadian dollars, those dollars must be converted into foreign currencies so the fund manager can buy foreign securities.

When the Canadian dollar appreciates, the foreign currency will be worth fewer Canadian dollars  causing a negative effect on that Canadian investor’s foreign assets. When the Loonie depreciates, the foreign currency is able to buy back more Canadian dollars than originally invested – causing a positive effect on the value of the foreign fund.

Forecasting geopolitical events and currency movements is a mug’s game – even the experts won’t try. Like market volatility, currency volatility tends to smooth out over time so the best strategy is to continue investing according to your personal time horizon and tolerance for risk. Your professional advisor can help you determine a beneficial strategy for your situation.

J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Regional roundtable tackles Comox Valley air quality

Group includes a range of government and community members

Another Sayward councillor resigns ahead of November byelection

Council will be able to maintain quorum till byelection is held, says Municipal Affairs Minister Robinson’s office

The secret life of tadpoles

Vancouver Island photographer Maxwel Hohn’s documentary traces the ‘big little migration’ of western toad tadpoles

Primary care network to be established in the Valley by the province

Over the next three years, up to 13 new full-time equivalent health-care providers will be recruited

Courtenay event protesting old-growth logging part of a province-wide rally

Similar rallies in communities throughout B.C. on Sept. 18

Record-breaking 165 new COVID-19 cases diagnosed in B.C. in 24-hour period

Fifty-seven people are in hospital battling the novel coronavirus

Courtenay event protesting old-growth logging part of a province-wide rally

Similar rallies in communities throughout B.C. on Sept. 18

Comox Valley Beefs & Bouquets, week of Sept. 15

Beef to the gnome thief; bouquet to dental hygienists

March to protect old growth, stop industrial logging coming to B.C. Legislature

Organizers say they want to give frontline communities a bigger say in nearby logging

B.C. releases details of $1.5B economic recovery plan, $660M in business tax incentives

Economic plan includes support for employers, as well as training for workers

‘Not criminally responsible’ hearing slated for man convicted of Abbotsford school stabbing

Gabriel Klein was found guilty in March of killing Letisha Reimer, 13, in 2016

Most Read