Is the Canadian Dollar now considered a 'safe haven' currency?

dollars As the world continues to wade through the economic wreckage of a recession and muster some kind of recovery, investors around the world are having to make tough decisions about where to put their cash in uncertain times.

When it comes to safe haven currencies the U.S. Dollar has historically been king of the hill. However, with U.S. debt levels tickling record highs and double-digit unemployment numbers, the days of the U.S. Dollar being the best defensive currency may be coming to an end.

The national debt has risen above 50 percent of GDP (gross domestic product) from 40 percent two years ago, and within 20 years will blow past a previous record above 100 percent of GDP set after World War Two without stern official steps.

Mounting debt could sap investor confidence in the economy, and the nation's ability to honor its obligations, pushing up interest rates and causing a steep fall in the value of the dollar as international creditors seek safer returns elsewhere.

If the U.S. Dollar is losing its status as the de facto global currency of choice, could the Canadian Dollar be viewed as one of the best alternate safe haven currencies? If foreign buying patterns of Canadian Bonds is any indicator, that answer may very well be 'yes'.

Foreigners invested heavily in Canadian bonds in November as credit markets recovered and the Canadian dollar rose, pushing total purchases of Canadian securities to C$10.54 billion ($10.23 billion) in the month, Statistics Canada said on Monday.

Their net purchase of C$97.82 billion in the first 11 months of 2009 is higher than any previous annual foreign investment on record.

Not only are the prospects of the Canadian Dollar looking favourable, but it may be poised to blow past parity with the U.S. Dollar for reasons that go far beyond fiscal responsibilities and conditions.

It (Canada) has gold, skyrocketing in value as a hedge in a worrisome economic world. Oil in the west might be problematic for environmentalists, particularly that which is extracted from the oilsands, but the world needs petroleum products to grease, propel and construct wealth. As for cleaner fuels and energy sources, Canada has them too -- natural gas and uranium. Greener is our extraordinary store of natural gas.

This country is one of the premier exporters of potash, critical to the supply of world food. Canada is itself an exporter of food, which is becoming more valuable as developing countries demand, and can purchase, better diets.

Global industrial countries, as they pull out of the recession, need our natural resources to replenish inventories as demand develops.

Ready or not, Canada's time is now and the world will be coming to our doorstep with money and expectations. Can Canada get comfortable in its own skin as a global financial leader after so many years of being a monetary subordinate to our southern neighbour? How well Canada capitalizes on this window of opportunity will likely shape our country for generations to come.

TAGS: Currency, Dollar, Economy

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