For our Canadian investors, there are currency hedge or non-hedge ETF investing in US stocks or bonds. For example, S&P 500 index ETF got currency hedge or non hedge ones. When the US dollar is weak against Canadian dollar, we can buy the non-hedge one. When US dollar is strong, we can buy the hedge version. In the future, when US dollar is strong, then we can sell the non-hedge version. When the US dollar is weak, then we can sell the hedge version. That is diversification. It is good to have options to take advantage of the ups and downs of the exchange rates.
The exchange rate is impacted by many factors. The recent strong US dollar is mainly driven by Federal Reserve’s interest hike which increase the yield of US bonds. Investors around the world would like to buy the US bonds and they have to exchange for US dollars. Hence, the demand for US dollars increased and thus the exchange rate for US dollars. However, many central banks around the world hiked their interest rate too. Relatively speaking, US economy is still better than other countries.
Interestingly, the US multinational corporations’ revenues took a hit because the money they made in other countries will exchanged for less US dollars thanks to the strong US dollar.
It is predicted that the strong US dollar will end when the Federal Reserve starts to lower the interest rate. Any prediction is very hard. It is not advisable to base investment decision on short-term predictions but on what has already happened.
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