Invesco Canada blog

Insights, commentary and investing expertise

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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Market review: While France votes, U.S. faces shutdown


April 25, 2017
Subject | Institutional | Macro views

Sunday saw the start of the much-awaited presidential election in France, and many advocates of the European Union (EU) are breathing a collective sigh of relief. Centrist Emmanuel Macron and far-right candidate Marine Le Pen garnered the most votes – 23.75% and 21.53%, respectively – and will therefore advance to the runoff election on May 7. For those who wanted to see as little impact on capital markets as possible, a Macron–Le Pen matchup is as close to a “best-case scenario” as possible. (The “worst-case scenario” for the continuation of the EU was a matchup between Le Pen and far-left candidate Jean-Luc Melenchon, who are on opposite sides of the political spectrum, but both anti-EU.)

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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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Interest-rate outlook as global growth improves

The 10-year Canadian government bond yield has retreated from its 2017 peak yield of 1.87% and currently sits in the middle of this year’s range of 1.61% – 1.87%.1 Economic data has generally been picking up this year with employment growth showing particular strength. The Bank of Canada has kept policy on hold recently, but remains wary of persistent economic slack. We believe the current trading range is likely to persist unless global economic growth picks up further.

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