The Canadian dollar has dropped dramatically below parity with the U.S. dollar, after steadily climbing higher since March 2009. It has lost more than 4 cents since Wednesday alone.
Andrew Busch, global currency and public policy strategist at BMO Capital Markets, took your questions today in a live, online discussion.
Mr. Busch provides clients with analysis on public policy issues in both the United States and Canada. On a regular basis, he consults with staff from the White House, the U.S. Department of the Treasury and Congress on economic and market issues.
In 1990, Mr. Busch joined BMO's Foreign Exchange Group in Chicago. Prior to that, he traded foreign exchange at Northern Trust Company. He graduated Phi Beta Kappa with a BA in Economics from Ohio Wesleyan University and received a MBA from the University of Chicago.
A full transcript follows:
2:49 Globe Careers - Good afternoon every one. I'm Globe Investor Web Editor Darcy Keith.
2:53 Darcy Keith - The loonie right now is sitting at 97.15, down exactly two pennies for the day. Ouch!
2:54 Darcy Keith - On this crazy day in the markets, our Rob Carrick offers some calming advice. Here's the link: http://www.theglobeandmail.com/globe-investor/personal-finance/rob-carrick/nasty-the-new-normal-for-markets/article2176072/
2:57 [Comment From andrew busch]
Wild day of Risk off trading leading to big US dollar rally.
2:59 Darcy Keith - Andrew, just to start off, I'm wondering what your view is from here? How much further down can we go in the short term?
3:02 [Comment From andrew busch]
There's potential for a drop in equities of another 5-10% from these levles with the S&P dropping to 1,040. USDCAD rising to 1.08-1.10.
3:03 [Comment From Jason ]
Do you think that the loonie will go back above par, or settle out around where it is now?
3:03 [Comment From andrew busch]
I think our big ranges are 0.92-1.12. I also believe that the world is not going to come to an end, but it will feel like it over the next 6 weeks.
3:04 [Comment From AQu ]
I have some USD sitting in my savings would now be a good time to convert these to CAD
3:05 Darcy Keith - And here's a related question from Arash:
3:05 [Comment From Arash ]
I have a simple question. I have a significant amount of USD that I need to exchange to get CAD. Should I do it now, or it is better to wait and the rate will get better?
3:05 [Comment From andrew busch]
It really depends on your individual situation. However, I would advise that you put a game plan in place and be ready to act should you get the opportunity.
3:05 [Comment From Meghan ]
I am a Canadian graduate student in the US. My next tuition payment (over $20,000) is due in January. What do you expect will happen to the loonie between now and then?
3:08 [Comment From andrew busch]
Use a plan. Here's an example. If USD/CAD rises to 1.0500 or goes back to 1.000, you buy half the CAD amount you need. Then create a new trading plan for the remainder. Remember, this a very difficult game and there are rules to follow or you will lose a lot of money. Be disciplined.
3:08 [Comment From ]
How could the US dollar not loose a lot of value with such a steep increase in M3?:
3:09 [Comment From andrew busch]
Fear and flight to safety can drive the US dollar to levels that reflect that.....think 2008.
3:10 [Comment From Corey ]
Seems counter-intuitive that the USD strengthens on bad US economic news. Why do investors still consider the USD a safe haven?
3:11 [Comment From andrew busch]
Yes, size of Tsy market and $ liquidity is critical to flow in and out of quickly for investors.
3:12 [Comment From forex-noob ]
Are options becoming very expensive for hedging CAD forex risk? What's the risk premium doing over the past few days? Has the volatility made it more expensive to manage forex risk for exporters?
3:16 [Comment From andrew busch]
Yes vols are higher and can be expensive. However, you can use call spreads to cheapen it up.
3:16 [Comment From Bruce ]
here is a relevant question. Is a sub par Cdn dollar a bad thing in a recession?
3:17 [Comment From andrew busch]
Definitely not, especially when inflation is not exploding for Canada.
3:17 Darcy Keith - Here's a question from Adam that a number of our readers have been wondering about
3:17 [Comment From Adam ]
how could we make money on this turmoil?
3:20 [Comment From andrew busch]
From here, I'd say you have two choices. You can go with this move, buy USD ag EUR or CAD, and sell equities (Sell risk). The other choice is to pick a spot to fade it and go the other way. Markets go to extremes when there is a consistent newsflow in that direction. Once that breaks, then you can jump in and go the other way. Again, you have to create the game plan and stick to it especially your stop losses. Don't be surprised if you get stopped out quickly, this is the nature of the markets now.
3:21 [Comment From Dave ]
What factors will cause a rebound of the CAD? When should we look for that to happen?
3:21 [Comment From andrew busch]
I expect the stock markets to finish at their lows today. After that, we should see a bounce.
3:22 Darcy Keith - So a bounce coming over the next few days in the loonie?
3:22 [Comment From andrew busch]
CAD will outperform when oil and global economy stabilizes. Agn, we're in for 6 weeks of problems.
3:22 [Comment From ]
My company needs buy a significant amount of USD to pay a vendor in the next 2 weeks, and next 2 months. What would be an appropriate strategy to manage our currency risk during these volatile times?
3:25 [Comment From andrew busch]
you should have a systematic hedging program in place to smooth out m-t-m fluctuations. you need to review what your exposures are for the entire year and hedge on a monthly basis. you are in your business not the ccy business. Hedging monthly keeps your cash flows stable.
3:26 [Comment From Jeff ]
Do you have any predictions for the fate of the European Union? If it does dissolve will that drive the USD higher?
3:28 [Comment From andrew busch]
In the ST, Europe needs to approve their new EFSF expansion and approve the additional bailout funds for Greece. In the LT, they have to change their consitution to have the abililty to kick members out who cheat. 5 years down the road, I expect there will likely be a different makeup to the 17 members with Greece and Portugal out and some eastern european members joining.
3:28 Darcy Keith - Here's Mark with a follow-up question
3:28 [Comment From Mark ]
"There's potential for a drop in equities of another 5-10% from these levles with the S&P dropping to 1,040. USDCAD rising to 1.08-1.10.". To ensure i'm understanding this correctly, there is a possibility in the short term to get $1.10CAD for $1USD?
3:29 [Comment From andrew busch]
Yes.
3:29 Darcy Keith - Great, thanks Andrew. We are almost out of time for today i'm afraid for this live chat. Andrew, any final thoughts or predictions you'd like to leave us with today?
3:30 [Comment From andrew busch]
Have a plan and stick to the stop loss levels. It's a volatile market.
3:31 Darcy Keith - Thanks for sharing your advice today Andrew. And thanks to all for joining us. Sorry to those who asked questions we couldn't get around to.
3:31 Darcy Keith - It'll be an interesting end of trading today in the markets for sure. Hang tight! Good-bye everybody!
3:33 [Comment From Mike ]
thanks!