Playing the American dream: The sectors Canadian investors should watch as the U.S. dollar rises

For investors looking for an upside to a strong U.S. dollar, there are options outside of Canada.

We live so close to the world\’s largest and most influential economy that maybe it\’s natural for Canadians to always compare ourselves to Americans, as though there aren\’t any other countries that really matter.

Don\’t get addicted to boom times: Why investors should beware market highs and other fads

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Like hippie love-ins and disco, fads in many cases are remembered with fondness by those who lived through them. This drives younger people completely bonkers, of course, but we do it anyway. And it\’s little different with investing.

If we\’re honest with ourselves, people old enough to remember the boom of the late 1990s will not be able to really deny that we were distracted by a contagious spirit of optimism and change. Yes, everything ended badly – terribly, in fact. But before the collapse of the dot-com bubble in 2000, investors largely drank the Kool-Aid, and that we liked it.

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It\’s a large wide world available, but we have a tendency to forget that simple fact, because of the size and the importance of our relationship using the United States.

Cultural and historical ties (and some antagonisms) run deep: We watch American TV, buy American brands and lounge on American beaches every winter. For the businesses, what matters is that it\’s our largest trading partner. Last year, we exported US$346 billion of goods to the States – second simply to China – and we imported a lot more than US$310 billion worth of stuff from south of the border.

It\’s a big deal, and largely a good one for us.

These days, investors are sharpening their focus on what Americans are as much as, and it\’s probably justified. Economic growth in the U.S. looks much more robust compared to most developed economies, and it is monetary policymakers are pretty much alone in adopting a bias toward raising rates of interest. Other countries, including Canada, have eased in order to stimulate growth, but the U.S. goes its own way and setting the diary for global currencies and markets.

When Janet Yellen signalled dovishness even as she removed the word \”patient\” from the U.S. Federal Reserve\’s statement on Wednesday, markets all over the world jumped and currencies rebounded (however marginally) within the expectation that U.S. rate hikes would be more mild, and maybe later, than expected.

None of the recent dovishness, though, is likely to reverse the greenback\’s strength in the near future. The Canadian dollar is poised to hover below US80 as oil prices remain depressed, and as Bank of Canada governor Stephen Poloz may (or, granted, might not) further ease interest rates.

One of the most-talked-about upsides for this trend is that the continuing weakness from the loonie will make Canadian exporters more competitive on price, and should provide a boost to Canada\’s long-suffering manufacturing sector. Investors are naturally turning focus on Canadian firms that serve the American demand for stuff and can benefit from the cheap loonie (and economical oil).

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