Is it advisable to leverage currency fluctuations on top of an investment portfolio?

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asked Mar 06, 2015 11:15 AM by
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updated Mar 06, 2015 11:16 AM by
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Hi Jin,

I was investigating historical currency fluctuations between USD and CAD and it got me to thinking that perhaps this could be leveraged within the portfolio. Let me explain:

Historically the exchange rate between CAD and USD has fluctuated, seeing a low of 0.9 to a high of 1.6 CAD to one USD since 1990 (see chart here.) So it got me to thinking, since I am Canadian and fund my RRSPs in CAD, is it advantageous to weight my holdings proportionally higher when the CAD is weak (such as now), and flip these investments over to USD investments when the CAD is strong. This may allow leveraging currency fluctuations on top of the returns of the stocks held.


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answered Mar 08, 2015 06:29 PM by
Jin Won Choi gravatar image Administrator

Hi rbmoss,

If someone can predict currency movements with a high degree of certainty, yes you can make money by exchanging your money back and forth from USD and CAD. However, I wouldn't do that by switching between US and Canadian stocks, because then you'd be messing with the allocation between the different country stock markets, and introduce more risk. I would just use currency ETFs like DLR.TO or better yet, open a forex (i.e. foreign exchange) account with a discount brokerage like Questrade.

However, I don't pretend to know where the exchange rates are going, and I won't believe 99.9% of the people who would say they do. Exchange rates are influenced by a complex interplay between economics, geopolitical events and various other factors. There are big hedge funds called 'macro funds' with almost unlimited resources who utilize all manners of proprietary information in order to predict currency movements. If they think CAD would move up against USD in the near future, they would have bought enough CAD until the opportunity disappears.

To say that CAD will rise against USD amounts to saying that you know better than these hedge funds. That's not a bet I would want to make.


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