The foreign exchange (Forex) market is a big one. As of April 2014, according to the Canadian Foreign Exchange Committee, the average daily volume of traditional foreign exchange products in Canada totalled $58.2 billion. In actuality, the foreign exchange market is the largest in the world when compared to equities, fixed income and others. According to some experts, nearly 80% of all currency trading is speculative in nature. The remaining activity is more need driven; large corporations with payables in other currencies, mergers and acquisition activity, or exchanging foreign currency received for goods and services provided in other countries. Another need that drives someone into the Forex market is a cross-border move.
For someone moving to another country, it is important to consider that in due time the majority of one’s expenses and expenditures will be denominated in a base currency that is different from what it is presently. Thus, a need arises to enter the foreign exchange marketplace and trade your home currency for that of a new currency. Many of our clients that move to the US do keep some ties with Canada, including cottages or other properties. Often the planned move to the US is many months or years away; each case is unique. If clients are planning on spending significant time back in Canada and have properties and other assets that will generate costs in Canadian dollars, an analysis is required to ensure the correct balance of CAD/USD is available to cover expenses in both jurisdictions. This careful planning can help mitigate the risk of having to convert currency to cover an expense at an unfavourable exchange rate. Consider a client who is moving to the US in a year’s time. Many questions come into play when planning for the transfer of assets to the new home currency. When should the exchange take place? Is this the best rate or will it get better? Should it be done periodically or all in one shot? Should I exchange all of my assets? If not, how much should I leave? Are there tax implications to consider?
No one can predict exactly what is going to happen with any given currency at any given time. However, this does not eliminate the need to monitor the current economic landscape and allow for decisions to be made based on all available information. The expected trend in exchange rates are just one factor to consider, just as currency planning is but one factor to consider given all of the complexities involved in a cross border move. It is an important cog in a large and constantly moving wheel. We at MCA Cross Border Advisors monitor the long-term trends in the CAD:USD currency environment. Not to speculate, not to position ourselves as having foresight that others don’t; but instead, allowing us to be active in our approach to helping you minimizing your transitional risk.
For more information, we maintain a quarterly currency outlook that is available for our clients to help guide better informed decisions. This outlook aims to summarize available market sentiment and outlook on the CAD:USD exchange rate and provides the forecasted rate of different research providers. If you would like to stay informed, sign up for the MCA Cross Border Advisors newsletter and you will receive the most up to date copy of the outlook.