Russia Diversifies into Canadian Dollars

This story in the Financial Times may well be part of a larger trend:

Russia’s central bank announced on Wednesday that it had started buying Canadian dollars and securities in a bid to diversify its foreign exchange reserves.

Analysts said the move could be a sign of increased diversification of emerging market central bank assets away from the dollar and into investments denominated in other commodity-linked currencies, such as the Australian dollar.

David Rosenberg has recently said that the Canadian dollar is slightly high compared to the US dollar, but that the loonie has better long term prospects. I agree and considered putting money into a Canadian dollar ETF. But I decided to maintain my SPDR Gold ETF and purchase my gold mining stock plays instead.

Plus, I have exposure to the Canadian dollar through Canadian holdings Fairfax Financial, EGI Financial and BCE. I see the stocks trading in Canadian currency as a wind-at-their-back thing. Obviously it won't help much if the companies do poorly.

Back to the linked story. With the FT reporting that Russia and others are buying commodity-linked currencies "at the top" -- and with several Barron's Roundtable participants pointing to near-term strength for the US dollar -- diversifying away from the USD may look less than stellar for the next few months. Or even most of 2010.

But it certainly looks like the US dollar faces turbulence over the long term.

Comments

[Samuel A.]

I think Russia is making a sound investment by buying Canadian dollars since they are doing better than our weak US currency.

[John]

Samuel: Agreed, though the USD may get stronger in the short term.