Invesco Canada blog

Insights, commentary and investing expertise

Currency outlook: Global growth, eurozone elections continue

Canadian dollar strength has faded recently despite stronger economic data. Weakness in oil prices has been responsible for some of the reversal. The Bank of Canada has, at least temporarily, dropped its dovish tilt, but appears content to leave the overnight rate target at 0.50% for the foreseeable future.1 The Canadian dollar continues to remain overvalued, in our view.

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Currency management: A simple roadmap

Global diversification has become standard practice among investors around the world. As the trend toward global investing grows, managing currency risk in global portfolios is likely to take on increasing importance. Sovereign wealth funds, central banks and other investors are likely to consider the benefits and challenges of currency hedging as their investment strategies become more globally focused. However, evaluating the impact of foreign exchange risk on portfolios and how to address that risk is a debated issue. Should global investors adopt strategies to specifically address currency risk or should they not?

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Currency outlook: CDN overvalued, USD mixed

The Canadian dollar was reasonably strong until the first week of March, when the U.S. Federal Reserve (the “Fed”) began telegraphing the prospects of a rate hike at its March meeting. The Bank of Canada has appeared to continue to favour a somewhat weaker currency in spite of some strong economic data, including very strong full-time employment reports. Our opinion remains that the Canadian dollar is overvalued and we favour being short the currency.

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Currency outlook: CAD overvalued and USD mixed

The Canadian dollar has appreciated against the U.S. dollar since the U.S. presidential election in November. Some of the strength has been due to the higher price of oil on the back of promised cuts by OPEC producers in late 2016. In addition, a recent string of positive employment reports in Canada has supported the currency. Bank of Canada Governor Poloz attempted to limit further appreciation by mentioning that a rate cut was still possible at its January meeting with limited success. We believe the Canadian dollar remains overvalued.

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Currency outlook: USD volatility and euro weakness

The Canadian dollar has bounced around since the U.S. presidential election as economic growth has shown positive signs but inflation continues to disappoint the Bank of Canada (BoC). It sold off initially after the Fed raised rates in December, but rallied back strongly after year end. The BoC stated at its January meeting that rate cuts are still a possibility, but it will likely wait until more clarity is available on U.S. fiscal and trade policy before taking action. The Canadian dollar remains overvalued, in our view, but will likely trade within a range in the near term.

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