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

Canada, with its wealth of natural resources, is bouncing back nicely from the global recession, with interest rates set to rise. That means it's a good time to buy the 'loonie'.

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.

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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.

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.