Why Patricia Croft is a “Canadian-dollar bull”

 Veteran economist Patricia Croft admits it: she is a Canadian-dollar bull. "Parity against the U.S. dollar is the new normal,” she says.

In her more than 30 years on Bay Street, Croft has done stints at RBC Global Asset Management and Phillips, Hager & North as part of their asset-allocation teams. This November in Naples, Fla., at the Distinguished Advisor Conference, she'll present the reasons for her hard-held beliefs as she explores today's global economy.

"It's not just parity,” Croft asserts. "The C$ is going to go higher. I am expecting it to go to US$1.10-$1.15 within the next two years.”

Croft lists a number of reasons for the strong dollar. The first one she references is Canada's AAA credit rating. "Canada is one of the very few countries that has retained its AAA credit rating during the recent economic downturn,” she says.

There are other factors that also set Canada apart. In an economic crisis ignited by failures in the global financial system, Canada's banking system has remained strong and stable. As Europe has slipped back into recession in recent months, and continuing economic weakness in the U.S. has lead to that country's third round of quantitative easing, Canada has moved forward, slowly but surely.

"Canada has recovered all the jobs lost since the Great Recession,” says Croft, "and then some.

"In addition,” she says, "the Bank of Canada has not had to do any quantitative easing. In fact, the governor of the Bank of Canada, Mark Carney, is talking about raising interest rates. South of the border, the Federal Reserve has indicated interest rates will remain close to 0% until 2015.”

All of these factors are bullish for the C$. The Fed's QE3 program, which promises to pour US$40 billion a month — with no end in sight — into the U.S. economy, will only deflate the US$ and push the C$ higher. Higher interest rates will make the $C even more attractive.

Another economic feather in our cap, says Croft: "Canada is the only country to deflate the housing bubble without cratering the economy or the financial system.”

Canada's overheated housing market is cooling off with gains in housing prices in the mere single digits in recent months. Consumer spending, which has fuelled Canada's economic recovery to a point that concerns economists, is starting to slow. Consumers are becoming more apprehensive about the amount of debt they have accumulated It is all good news for the C$.

"Canada has become a ‘safe haven,'” says Croft. Foreign investors have been pouring money into Government of Canada bonds and into money-market instruments. (Knowledge Bureau Report, Aug. 15) "There have been record inflows into the bond market.”

All of this indicates a C$ that will surpass parity — and keep climbing. That means portfolio strategies will be to be adjusted, which fits in with the theme of this year's Distinguished Advisor Conference Nov. 11-14, "Navigation: Charting a New Course.” When Croft takes to the stage on Nov 12, she'll examine the impact of a higher C$ on investment strategies.