After becoming overvalued, the Canadian dollar is weakening.
This is necessary for the economy to stabilize, however, says Luc de la Durantaye, first vice president of global asset allocation and currency management at CIBC Asset Management. He manages the Renaissance Optimal Inflation Opportunities Portfolio.
“Our exports have become less competitive and because of that we’ve developed a negative merchandise trade,” he says. “It’s important for the Canadian dollar to stop rising or depreciate […] if we want to restore a more competitive merchandise trade.”
He adds the dollar has been dropping since late December 2012, and this trend will continue. But compared to other currencies and economies—including the U.S. and Japan—Canada still comes out on top.
“The Canadian dollar isn’t as vulnerable as it was three or four months ago,” adds de la Durantaye.
He warns investors not to get caught up in the currency war. “You have to pay attention to the currencies you have in your portfolios. Look at which are potentially at risk and which are potentially likely to appreciate [so] you have better balance.”
This can be done through funds that have active currency management, he adds.
“If you have too much yen in your portfolio, [or] too much British pounds, U.S. dollars, or Euros, reduce that exposure” by investing in more sound economies and currencies.
“That way, your portfolio isn’t negatively impacted by the foreign currency it holds,” concludes de la Durantaye.
NOTE: Stay tuned for part two of this discussion on currency. This coming Monday, we’ll reveal Durantaye’s views on Japan and the depreciating yen.