Why now's a good time to buy the Canadian dollar

By MoneyWeek Editor John Stepek Apr 26, 2010

John Stepek

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Now's a good time to buy the loonie. So says my colleague David Stevenson in today's Money Morning.

The loonie is the Canadian dollar. It's so named because it has a picture of a Canadian bird, the common loon - or great northern diver - on the back of the dollar coin.

The loonie (which has the forex ticker, CAD), is one of the 'commodity' currencies. Canada is blessed with a huge range of natural resources. It has more water than it needs, a Saudi Arabia's-worth of oil in its tar sands, and timber growing all over the place. In these days of fiat currency, a commodity currency is about the closest thing to hard-asset backed money that you can get.

But of course, it's not just the commodity backing that makes the loonie attractive. After all, the commodity story is always there. And the loonie has already done rather well out of it, along with the world's other commodity currencies, such as the Australian dollar.

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There has to be another decent reason to buy it now. And David reckons he's got it. One chart in his piece explains exactly why the loonie should keep rising against sterling. Essentially, the Canadian economy is recovering fast and interest rates are set to rise, whereas Britain is nowhere near as healthy.

As long as that situation continues - and it should for some time - there's plenty of room for the loonie to rise further. As David says, one of the easiest ways to play this trade is via spread betting. Do bear in mind that trading currencies is risky - they can be extremely volatile and if you're spread betting you can easily lose more than your initial stake. You can find an account to suit you using our comparison table here.

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Published in Spread betting explained | More articles by John Stepek

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