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Canadian Dollar to Outperform US Dollar Over the Coming Years.

Wednesday, October 7, 2009

Canadian Dollar to Outperform US Dollar Over the Coming Years.

The American Dollar is in trouble. Over the past couple of decades the US Government has borrowed and borrowed and now the White House sites on over $11,925,000,000,000 in debt. That’s around $38,834 per person! Take a look at the US Debt Clock. If you scroll down to the bottom you will see that each citizen in the US is Liable for an estimated $348,953 of Total Debt. If you think the US Consumer will be back in their full glory of spending fury any time soon than please explain how this is possible to the rest of the World.
On October 5, 2009 a major rumour that could significantly deflate the value of the US Dollar hit the media. The rumour, some Gulf Arab states were considering using currencies other than the US Dollar for oil trading. The Canadian Dollar responded to these accusations by rallying over $0.01 which is over 1%. If Arab Oil economies do in fact make such a move from the dollar there is huge potential for a nose dive in the US Dollar. This would make US Exports cheap and potentially help revive American production, but at the same time the US is a net importer so a lower dollar will destroy American purchasing power. This would be another stake in the heart of the American consumer.

An American consumer that has to pay more for goods and services will experience extreme amounts of inflation scraping away years of wage increases, and further eroding retirement portfolios. I guess freedom 55 becomes a tall tale.

With the Arab oil rumour in full force during afternoon trading Gold price shot higher. Inflation concerns were the main culprit. This rumour was brushed off by the Arab Oil States, but such a rumour sounds all too reasonable.

If you were an Arab Oil State and concerned about your profits being tied to the US Dollar where would you turn?

Let’s face it, there are only so many currencies that make sense for petro trading: the Euro, the Chinese Yuan, the Russian Ruble, the Japanese Yen, the Canadian Dollar, the Australian dollar.

Some of these currencies can be scratched from the list almost immediately due to their lack of faith from the investing World. Personally, I would immediately remove the Yuan and Ruble from the mix due to my lack of familiarity with the currencies and potential for drastic changes due to government control. The rest I would argue could be a diversified mix of currencies the Arabs may turn to in search of replacing US Dollars.

There is still too much uncertainty in the stock market and currency markets to make a well established prognosis, but it does give you something to think about in the mean time. My personal opinion is that the Canadian Dollar will appreciate over the coming year at the expense of the US Dollar as the American Economy is lucky to limp out of this recession. The other currencies above are also likely to do the same.

Previous Articles about the Canadian Dollar at Investing in Canada include: Is Now the Time to be Investing in Canadian Dollars, Canadian Dollar: How to make money on the increasing value of the Canadian Dollar, GDP Growth, Inflation and the Yield Curve, Strength of the Canadian Dollar

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