This month, Canadian energy stocks led the pack, followed by the U.S., and then other global securities. The notable laggard was gold. While the yellow metal climbed to an all-time high of almost $2,100USD in August, it now trades around $1,950USD. Despite the decline, it remains more than 20 per cent higher on the year.  

I rarely comment on currencies, but recent trends warrant mentioning. Since early April, the U.S. dollar index, which measures the American currency against a basket of international currencies, has fallen roughly nine per cent. This has led many to speculate this trend will continue. However, I'm not yet convinced of this inevitability. 

In many ways, the U.S. dollar is performing as usual. Since becoming the world's reserve currency, it has been a safe harbour during economic storms. When securities decline, as they did earlier in the year, investors flock to the dollar, causing it to rise (which it did in February and March). As you may have guessed, when stocks rise, which they have since April, investors sell the dollar to invest in riskier areas that will maximize profits - leading the dollar to decline. In other words, this year, the U.S. dollar has moved as one would expect. 

There are reasons to doubt its continued decline as well. Most prominent of these is the unknown. If COVID cases spike in the fall, the economy and global stock markets could worsen - once again leading to greater investor interest in the American currency. Government spending has also surged in an attempt to support citizens and economies. When spending returns to normal, the economy may be ripe for a recession - which would be bullish for the dollar.  

That all being said, there are good reasons the U.S. dollar might continue to decline, as well. The U.S. Federal Reserve is printing money at unprecedented levels, diluting the currency in existence and leaving investors less optimistic than usual. 

Typically, the global dependence on the U.S. dollar - roughly 55 per cent of transactions occur through the American currency - allows the U.S. to print money more liberally than other countries. However, if China, whose economy is almost the size of the U.S's., continues flexing its geopolitical muscles, it could expand the Renminbi's usages and potentially diminish demand for the greenback. Although this is not likely to occur for some time - only two per cent of global reserves are in the Renminbi - anything is possible. 

As for our portfolios, we are strongly positioned should the U.S. dollar slump further. Historically, a weak American currency is correlated with strong returns for commodities (priced in U.S. dollars), foreign securities (especially emerging markets), and value stocks. We are overweight in each of these areas.