The loonie has been on an absolute tear lately!
Those who’d bought U.S. stocks before the surge may find themselves in a hole. With the loonie above the US$0.77 mark, does it make sense to start buying greenbacks to buy U.S. stocks? Or does the loonie have more room to run from here?
The Bank of Canada recently took a hawkish tone to raising interest rates in July, which caused the loonie to rally by a fair amount. It’s not a mystery that many Canadians have excessive amounts of debt and a rate hike may hurt many of those who are ill-prepared. The Canadian economy is starting to get on the right track. Let’s face it: interest rates have been low for far too long.
Some speculators believe that the loonie could climb to the US$0.80 mark. A further rally may be sparked by a commodity rebound or through the actions of Donald Trump, who believes the U.S. dollar is “getting too strong.” There are many reasons to be optimistic about the loonie, but I wouldn’t try to speculate on where the loonie may be headed next, as the forex game is a bit of a gamble.
For Canadians with little or no exposure to the U.S., it may be time to start buying greenbacks after the recent rally in the loonie. Canada is a great place to invest, but it’s important to diversify to different markets like the U.S., which is a more stable economy that may ride the potential tailwind of Trump’s pro-growth agenda.
If you already have a sizeable U.S. segment in your portfolio, then you might not want to start swapping your Canadian dollars for greenbacks just yet. Even if your portfolio is mostly Canadian stocks, you may actually already have a decent amount of exposure to the U.S. already.
If you own shares of Toronto-Dominion Bank (TSX:TD)(NYSE:TD), Alimentation Couche Tard Inc. (TSX:ATD.B), or Fortis Inc. (TSX:FTS)(NYSE:FTS), then you’ve already got a fair amount of exposure to our neighbours south of the border.
Toronto-Dominion Bank has been expanding in the U.S. for quite some time now. The bank now has more branches in the U.S. than in Canada. Going forward, it’s expected that the management team will continue to beef up its U.S. presence.
Alimentation Couche Tard recently acquired CST Brands, which gives the company an even larger presence in the southern U.S. with CST Brands’s 2,000 stores. Ambitious founder Alain Bouchard stated that he wants to double the amount of stores the company operates by 2022, and you can bet that more U.S. acquisitions will be in the cards over the next few years.
Fortis is a solid Canadian utility company that has been investing heavily in its U.S. business over the last few years. Approximately 60% of its regulated assets are in the U.S.
Bottom line
If you’re keen on grabbing stocks trading on the U.S. exchanges, then the recent loonie rally makes it a good time to swap some Canadian dollars for greenbacks. If you already have exposure to the U.S., either directly or through Canadian stocks, then you might want to slowly start buying greenbacks as the loonie continues its climb.
Stay smart. Stay hungry. Stay Foolish.
