The Loonie: A new safe haven currency

by Michael Arbow MBA

Partner, RSD Solutions Inc.

www.rsdsolutions.com

info@rsdsolutions.com

 

The past few weeks have been filled with world altering events and uncertainty and the end story for those in Japan, much of the Middle East and the Euro-zone has yet to be written. With uncertainty, the appreciation in the price of gold has happened and is expected but what is not expected is an unwavering Canadian dollar (CAD). In terms of world currencies, when the going gets tough, generally, the tough go the US dollar (USD). However since February 1^st the CAD has traded above par to the USD and that is with long Canadian government interest rates at 80 basis points below comparable US debt and 7 bps below German debt (each holding AAA debt ratings). 

To me this suggests that the CAD is becoming a safe haven currency.  This move is substantiated by double digit immigration and high levels of international capital inflows both of which demonstrate that Canada is globally the preferred place to live and invest.  This new disconnect – that is the Canadian (resource based?) currency as a safe haven, is something to be proud of for Canadians but it will and can cause problems for our exporters. 

Bank of Canada Governor Mark Carney stated last week that the world is in a multi-decade commodity boom.  The effect of this according to economist Patricia Croft and David Rosenberg is that over the next 3-5 years a $1.20 USD/CAD exchange rate could prevail. To me, the trend has become fact.  For Canadian exporters and those investing in the United States, what steps is your organization taking to ease the potential pain?   

Politicians Are Risk Managers

by Stephen McPhie CA

Partner RSD Solutions Inc

www.rsdsolutions.com

info@rsdsolutions.com

 

Tuesday and Wednesday of last week saw budgets delivered by the finance ministers of both Canada and the United Kingdom.  To be more accurate, the budget was delivered in Britain by the Chancellor of the Exchequer.  As an aside, the British Prime Minister also has another title which is First Lord of the Treasury.

Both finance ministers had different agendas.  In Canada, the trick was not to get blamed if the budget was defeated resulting in an election call (which is indeed what happened but on a different matter).  In Britain, it was an imperative not to force the Liberal Democrats to abandon the coalition government, thus causing an election.  In both cases political timing is all-important.

Actually, in the latter case, the hard work was already done late last year and this budget only really consisted of some tweaking.  However, in both cases, a major consideration was essentially hedging against external factors that could not be directly controlled but which could result in major adverse consequences, at least for the finance ministers concerned and their political parties.  Politicians are masters of this type of risk management - pursuing sub-optimal agendas and policies to manage a political outcome.  In other words, taxpayers and the country as a whole pay an option premium on behalf of politicians.

There are often a lot of things not to admire about politicians and their methods, but sometimes you can admire some of their risk management abilities.  Can many company executives say the same about how people would see their companies’ risk management capabilities?