I cannot find a sane explanation for why the US Dollar has marched ahead of the Canadian Dollar since the economic crisis began.  I believe that as a result, the CAD represents an incredible buying opportunity, and I expect that within one year the value of the CAD to rise at minimum 20% relative to the USD.

The standard explanation for the newfound strength of the USD is that investors are skittish, and have dumped stocks and other investments for cold hard cash.  However the fundamentals of the USD are incredibly weak.  For one, it has a terrible return rate… at or below the rate of inflation last I checked.  This is a TERRIBLE investment, only looking good in comparison to the shocking decline of the stock markets.

The second reason I don’t like the USD right now is that the US economy is still in terrible shape, with what many saw as the core competency (financial sector) now in ruins while the established markets like automotive and aeronautics are surpassed by the rest of the world.  The technology industry is being surpassed by foreigners, and foreigners have the lead in the future “green” technologies which will be the wave of the future.  The collapse of the US education system combined with immigration “reform” will leave the next generation of US startups stillborn.

The third reason is that the government is in terrible shape.  The Bush administration left the balance sheet in ruins, and the Obama administration is unwilling to push the substantial (middle class) tax increases required to correct course.  The massive tax cuts that were included as part of the stimulus bill are worse than useless because they move the balance sheet even further offline, while also failing to provide much real benefit.

Combined all this with two ongoing wars (neither of which will end anytime soon), and I think I’ve made a pretty solid case that the deficits will continue to be a very large percentage of GDP for years to come.  Debt and deficit is not in itself a disaster, however it will sharply apply downward pressure to the USD as they borrow and/or print money to make up the gap.

Enough about America.  The fourth reason is that the Canadian Dollar is in part depressed right now due to the worldwide retraction of demand for resources.  If the world economies rebound because of stimulus, that resource market will again rev up — along with it the demand for Canadian dollars to pay for Canadian resources.  As well, with little military expenditures, healthy immigration and education polices, and relatively solid banking and government balance sheets… Canada is on pretty damn good footing right now.  Not just compared to the US, but to the entire world.

It’s low.  You know that old saying “Buy Low, Sell High”?  Time to buy.