Global economic recoveries are happening around the world despite the swift rise in COVID cases from the Omicron variant, and this should help benefit the Canadian dollar.
“The Canadian dollar is expected to strengthen over the coming year as global economic recovery continues from the COVID-19 crisis but gains for the currency could be kept in check by Federal Reserve interest rate hikes, a Reuters poll showed,” a Reuters report notes. “The median forecast in a Reuters poll was for the Canadian dollar to strengthen 1% to 1.26 per U.S. dollar, or 79.37 U.S. cents in three months, compared to 1.25 in last month’s forecast.”
This works out for investors who want to stay in fiat currencies despite the bull run of cryptocurrencies in 2021. While the latter is still an option as an inflation hedge, the volatility might put off some investors who’d rather seek the safe confines of fiat currencies like the Canadian dollar.
“Our expectation of Canadian dollar strength over the 12-month horizon is based upon our expectation of improved global growth conditions,” said Simon Harvey, head of FX analysis for Monex Europe and Monex Canada.
One Way to Play the Upside
Investors have options if they want to play the rise in the Canadian dollar as opposed to holding the actual fiat currency itself. There’s always the foreign exchange market, where investors can bet on spot prices, but the volatility of the forex market may not suit every investor, particularly if they can’t stomach the constant market fluctuations.
Another way is via the Invesco CurrencyShares Canadian Dollar Trust (FXC). Getting currency exposure via an ETF wrapper could help mute downturns when forex markets start to experience wild swings, especially when pegged to the U.S. dollar.
That said, as market positivism permeates the forex markets amid a global vaccine deployment, investors might be apt to take on more risk with currencies like the Canadian dollar. FXC seeks to track the price of the Canadian Dollar, net of trust expenses, and seeks to reflect the price of the Canadian dollar.
The sponsor believes that, for many investors, the shares represent a cost-effective investment relative to traditional means of investing in the foreign exchange market. FXC’s expense ratio comes in at 0.40%.
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