Canadian Dollar - A Simple Investment For Capital Growth Potential

Currency trading can be lucrative if you can lock into the big long term trends and at present one of the best is buying the Canadian Dollar V the US Dollar - here's why:

Currencies trend long term and the Canadian dollar is in a bull trend versus the US Dollar and while it may pull back in the short term the long term outlook is bullish and a buy and hold strategy with leverage could return 30 - 50%

Here are the driving forces behind the bull run which could see privious hit 1.10 in the near future.

Interest Rates

The grim economic news out of the US has already seen interest rates move down by 0.5% and we expect another rate cut in line with the consensus.

While there may not be a rate hike in Canada, it is unlikely that rates will have to come down. The cut in rates in the US has see the rate differential between the two currencies narrow and underpin the CD as a result and with more to come and this has firmed the currency further. The terrible job figures and gloomy housing data coming out of the US, is in stark contrast to the bullish Canadian economy.

Solid Fundamentals

Many analysts doubt that Canada can fail to be unaffected by a slowdown in the USA but this is NOT a critical factor at all. The housing market is firm in Canada and resource exposure ( firm oil prices in particular ) mean it should be able to rally against the dollar with other currencies with no problems and of these currencies rallying against the dollar there are none with stronger underlying fundamentals.

Rising tax revenue and energy income have allowed Canada to post 10 straight annual budget surpluses, the only country out of the Group of Seven nations with a balanced account. Canada's total consolidated revenue rose 25 percent during the past five years to C$601.26 billion.

Canada has a huge current account and trade surplus, (nearly 5 billion) as high resource prices offset a shrinking factory sector in terms of their effect on the nominal trade balance. Canada's economy is all set to expand 2.5 percent this year, outperforming the U.S. for the first time in five years.

The Global Economy & Resource Prices

A global recession is unlikely and Canada is doing well from what is a great boom in resource prices. Canada has benefited from rising demand for copper, gold, wheat and oil from the U.S. and from emerging economies such as India and China.

Canada is the world's largest producer of uranium, the second-biggest exporter of natural gas, and sits on the oil reserves outside of the Middle East. Canada is also the second-largest exporter of wheat, which rose to a new record high this month.

The near term Outlook

The currency has moved to quickly to soon, a correction is now likely.

Of all the major currencies NONE has stronger long term fundamentals than the Canadian dollar and at the end of the day, it is these that drive prices - whereas greed drives short term spikes and we are in one at present.

The currency markets never accommodate a crowd for long and the large number of speculators needs to be flushed out - when this has occurred the currency will resume its long term bull trend.

Watch for a correction to correct the over bought position and look for buying opportunities with a target of 1.10 by early new year or before.

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