Like many people in the 1980s, I grew up watching the TV series Murder, She Wrote. Jessica Fletcher, a mystery writer in Maine, is regularly called on to solve the improbably high number of murders in her town. Her politely circumspect approach allows her to navigate lies and half-truths to figure out who done it. The show’s formula involved plot twists and a surprise ending.

Over the short term,

currency markets

often behave the same way, and investors this year may have often felt like they were watching an episode of Murder, She Wrote while trying to follow the

United States-Canada exchange rate

storyline.

Early in the year, U.S. exceptionalism was expected to continue. The

U.S. dollar

hit a high of $1.46 in February, up eight per cent over the previous 12 months.

Then came Liberation Day, and chaos surrounding U.S. monetary and trade policy triggered a sharp decline in the U.S. dollar relative to the

Canadian dollar

(and other currencies). By June, the U.S. dollar had declined 6.8 per cent to $1.36; the narrative flipped and questions surrounding U.S. exceptionalism arose.

Now, here we are in mid-October, and the U.S.-Canadian dollar exchange rate stood at $1.40, only slightly above where it was a year ago — almost full circle.

How do

Canadian investors

with U.S. dollar exposure navigate all these twists, turns and shifting narratives?

Given the size of the U.S. investment opportunity set, significant exposure to U.S. assets and the U.S. dollar is almost inevitable. Nine of the 10 largest public companies in the world are U.S. companies; and U.S. companies make up 65 per cent of the market capitalization in the MSCI ACWI global public equity index.

Unlike when investing in equities, investors cannot simply rely on long-term U.S. dollar appreciation: over the long term, equities tend to rise in value, but exchange rates move in multi-year cycles, with large gains and losses along the way, and much smaller gains or losses over the combined up and down cycles.

The past year should serve as a cautionary tale for investors tempted to build their portfolios around trying to time exchange rate dynamics. It would have been easy to be wrong-footed this year.

Instead of trying to predict exchange rates, Canadian investors should look to balance two characteristics of U.S. dollar exposure in their portfolios: its tendency to act as a haven in times of extreme market stress and its tendency to gain and lose significant value, relative to the Canadian dollar, over multi-year cycles.

Given the concerning level of debt to gross domestic product (GDP) in the U.S. and the apparent desire for a weaker U.S. dollar, some skepticism of the future effectiveness of the U.S. dollar as a haven is reasonable.

But concerned investors should also keep in mind that the U.S. debt-to-GDP level is in the middle of the G7 pack (Germany aside), and previous U.S. administrations have targeted a weaker dollar (such as the 1985 Plaza Accord). It is still too early to count the U.S. dollar out.

At the same time, Canadian investors need to manage their U.S. dollar exposure to avoid material losses if the U.S. dollar enters a multi-year down cycle. After the long run-up from parity with the Canadian dollar in 2011, it is easy to forget that there have been multi-year periods of significant underperformance — such as the 41 per cent decline relative to the Canadian dollar between early 2002 and 2011.

Currency market dynamics are a lot like a Murder, She Wrote episode: there are lots of twists and turns. Investors need to be circumspect when it comes to the prevailing currency story. Instead of trying to time exchange rate moves, their focus on the U.S. should be on finding the exposure that balances the U.S. dollar’s haven properties and its potential to negatively impact overall returns in a multi-year down cycle.

With a little more than two months left in 2025, we may not have seen the final twist in the Canada-U.S. exchange rate story this year. Stay circumspect.

  • These two catalysts could rouse the Canadian dollar from the doldrums
  • With traditional safe havens no longer safe, here’s what investors can do

Bert Clark is chief executive of the Investment Management Corp. of Ontario.