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is against further rate increases at least in the short to mid-term. Working backwards, if the Canadian dollar increases from $0.77 to $0.85 that is a 10.4% ROI alone. That is because working backwards, as the Canadian Dollar increases in value it can “buy” more American dollars. Using Canopy growth as our example, shares of CGC are trading for USD$34.31 or on the TSX for $44.57 as I write this. Using an exchange rate of $0.77, USD$34.31 is about $44.56 which is what we expect to see as typically there should not be an arbitrage opportunity given the volume traded on both exchanges. Let ‘s assume Canopy’s shares reach the CDN$48.50 share price of the Constellation deal or let’s assume that is USD$37.35.
If the Canadian dollar rises in value to USD0.85 the buy and sell of 1000 shares would be, excluding transaction fees:
Canopy Share Price on TSX:
CDN$44.57
USD needed to buy 1,000 shares at CDN$44.57:
USD$34,320 (rounded)
Sell 1,000 shares at CDN$48.50: CDN$48,500
Convert to USD at $0.77
(assume no change):
USD$37,345 (8.8% ROI)
Convert to USD at $0.80:
$38,800 (13% ROI)
Convert to USD at $0.85:
$41,225 (20% ROI)
Only if you feel that the Republicans will hold power and that the President will turn America’s back on trade with its best friend and ally (Canada) would you possibly factor in the scenario of the Canadian dollar falling further. This is also precisely why the President is pushing for tariffs because the further the Canadian dollar falls the lower cost its exports become. In other words, it becomes a circle and this is why there has been an ongoing liberalization of trade for decades because of it systemic benefits on a macro-economic basis.