The Canadian dollar is once again at 52-week highs and edging closer to parity every day. Since this happens once in a blue moon, it pays to be able to recognize it when it’s happening and be able to act on the opportunity.
I’ve written previously about how you can build up your reserve of US dollars when the loonie edges higher. But here I just want to remind you of why you might want to do so and what having a good deal on US dollars can do for you. Some of Canada’s best companies consider the next 6-12 months to be one of the best times for going into the U.S. market, so it might pay to consider how you, too, could benefit.
What To Do With Your Money When the US Dollar is Weak and The Canadian Dollar is Strong
Travel to the U.S. Shopping, dining, visiting relatives and sightseeing all become more attractive in periods like these, as most Canadians know. You can try to plan your trips for periods when the loonie is high. But you should at least avoid going when the loonie is considerably low. Why voluntarily tack on an extra 20% price tag if you don’t have to?
Buy U.S. products. Shopping, as mentioned above – for all kinds of things. Cars, second homes — elective surgery even, if you don’t find a service you like in Canada for whatever reason.
Buy U.S. assets. Rather than consumer goods items per se, assets will be investment-oriented and ideally help you generate some income. This might include buying a business or franchise, or it could be as simple as buying a website or U.S. equities.
Pay off U.S. credit card debts. If you travel frequently or do business in the U.S., you likely have a USD-denominated credit card. Now is a good time to pay it all off, if you haven’t yet. You definitely don’t want to pay off US dollars when the loonie starts sinking lower than it was when you made the initial purchase in USD. That would be adding insult to injury threefold when you add in the interest costs as well.
What You Should Avoid Doing If the US Dollar is Weak and Canada’s Is Strong
Bad time to sell U.S. investments. As should be obvious as a corollary to the point made above about it being a good time to buy U.S. investments.
Bad time to export to the U.S. If you own a business, plan ahead for this period in which U.S. sales could be weak because the Canadian dollar is making your products or services look more expensive.
If you earn U.S. income, don’t convert this back into Canadian yet. In other words, make sure you have some system for pooling your US dollars when they are weak and before you convert them to Canadian. This could include business or investment income. In order to do this you need to make sure that you will not need your U.S. income for essential or recurring expenses. If you do, consider having an emergency fund or other system so that you do not have to suffer the negative effects of a bad exchange rate (rare as it might be in this direction).
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