Where to Invest If the Canadian Loonie Is to Hit an All-time Low Against the U.S. Greenback

Published on: May 30, 2024
Author: Caroline Kong

The further weakening of Canadian dollar is certainly not good for Canadian economies, including the fact that it will make it more expensive for Canadians to import goods, which could lead to higher prices for imported goods, thus fuel inflationary pressures and reduce consumers’ purchasing power.

In addition, Canadians travelling abroad will find it cost more to travel due to the depreciation of the Canadian dollar against other currencies, which could lead to a reduction in tourism expenditures and affect industries that rely on tourism, such as hotels and transportation.

Moreover, Canadian businesses that rely on imported raw materials or components will face increased costs that could squeeze profit margins, which could lead to reduced competitiveness in the international market.

However, if the Canadian dollar weakened further against the U.S. dollar, one industry that would benefit is the energy industry. As Canada is a major exporter of commodities such as oil and natural gas, a lower Canadian dollar could make Canadian exports more competitive in foreign markets.

In fact, according to one analyst, if the Canadian dollar hits another record low, Canadian resource companies will be “printing money”. There are many Canadian oil and gas stocks that continue to hold long-life reserve assets in Canada based on local costs. Therefore, if the Canadian dollar falls to incredible lows and oil prices remain at higher levels, exporting to the U.S. could create huge profits.

Where to Invest

If there is one company that investors should keep an eye on, it’s Cenovus (TSX:CVE). The company produces a large portion of its oil and natural gas for export. When the Canadian dollar depreciates, the revenue generated from these exports increases when converted to Canadian dollars. This will increase Cenovus’ revenues and improve its financial performance.

In addition, although Cenovus operates primarily in Canada, it still has some expenses denominated in foreign currencies, such as equipment purchases or technology licences. A falling of the Canadian dollar could reduce the cost of these expenses when converted to Canadian dollars, resulting in cost savings for the company.

A weaker Canadian dollar would also make Canadian assets, including those in the energy sector, more attractive to foreign investors. This could potentially lead to an increase in investment in Cenovus’ shares, providing more capital for the company’s expansion or investment in new projects.

Overall, the depreciation of the Canadian dollar will help the company to further improve its profitability. With a price-to-earnings ratio of just 11.4 times and a dividend yield of 2.6 per cent, this energy stock remains very attractive on the Toronto Stock Exchange.

Canadian Stocks Dividend Yielding Stocks Natural Gas Oil & Gas