Speaking of simplicity,  global trade has made us dependent on supply chains for industrial production and food supplies. As a result, currencies play a very critical role in the economics we are governed by. If we assume all things remain equal and nothing changes, in terms of pricing and supplies then all would be fine. Unfortunately, the world is not so simple. Conflict breaks out almost daily, differences of opinion become tools for dividing people, creating rallying cries for those in positions of power to advance their agenda. Hot Spots of conflict result in economic consequences for a multitude of people entrapped in our modern-day global economy.

When conflicts arise, it also ushers in volatility. The movements in markets can be extreme. A great example was the Price of Oil going into negative territory. Also, the introduction of negative interest rates forced people to use their money or slowly see their balances erode over time. In this case, those with money had more to lose. Those without really didn’t have much to worry about. A good friend once told me, “Phil, you never think of a quarter-point move in interest rates until you have money in the bank”.

Therefore, having said that, businesses are built to sustain profits and create employment. Profits and revenue have become the driving force for success. In simple terms when a business makes more money than it spends, it turns a profit. Yet many businesses are reliant on cash flow, which brings me to more wise words, “No money, no honey”. Feel free to interpret it any way you wish. 

Hedging strategies are very useful tools especially for Corporations or Individuals that are exposed to currency fluctuations. In the case of a company importing or exporting, currency exposure is a function of reality. Those companies that are specialized aren’t really concerned by competition but could be more interested in locking in greater profit margins due to a currency advantage for their own position.

With respect to other companies involved in global trading, currency fluctuations could be the difference between sustaining or destroying a business. Canada is generally viewed as a resource-based economy. As a result, a weaker Canadian Dollar is advantageous to the firms exporting their product abroad. Consequently, when the currency strengthens competitors can manipulate pricing based on currency advantage and eat away the profit margins to sustain the business until the tides of change bring back a windfall.

Hedging strategies can also apply to Individuals looking to purchase a home as investment abroad. For example,  your closing date is (3) months away and the Canadian Dollar is at a yearly high. Rather than play Russian Roulette with the uncertainty of the future, in terms of where the currency will be trading on that particular closing date, we can secure a price based on today’s market for the date (3) months from now. The only outlay of cash will be a deposit of Margin to secure the price for that specific date. The hedging strategy incorporated simply takes the guessing game away and provides cost certainty. Sure when we come to the closing date, the decision made can be measured as a positive or negative by comparing the current levels. But the purpose of using these hedging tools is to deliver cost certainty and relieve the individual or company from situations that cannot be foreseen.

With inflation seemingly running wild, Jobless Claims unexpectedly increased to 286k vs (220k) expected. The USD Index remains stronger above the 95.50 level as tensions mount with a possible conflict involving Russia and Ukraine. Could America be beating the drums of war as a diversion from domestic policy failures? Precious Metals are soaring with Gold in the $1850/oz range and  Silver around the $24.50/oz level. Meanwhile, Oil sometimes referred to as Black Gold or Texas Tea, made famous by the Beverly Hills Hillbillies, continues to maintain strength above the $86/barrel level. The Canadian Dollar rallies above the 0.80 cent level as momentum continues to be the wind beneath the Loonies wings.