Make a Run for Canada

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Canada has been displaying excellent strength relative to the rest of the world over the last two years. The country's markets are up more than 140% since the bottom in March 2009. With GDP growth of 3.1% in 2010, Canada's economy is humming along.

The Canadian dollar closed yesterday at U.S. $1.03, its highest level since Nov. 14, 2007. Over the last few decades, the Canadian dollar has been at par or above the U.S. currency for only a scant few months. Much of that time it has traded in the $0.80-per-U.S.-dollar range.

With data indicating that Canada's economy grew faster than expected in December, it's likely that the Bank of Canada's interest-rate meeting and announcement (set for today) will be closely watched. Though the bank is expected to leave rates where they are until the second half of the year, the latest GDP figures could pressure the institution to make increases sooner rather than later.

A key factor for the strong Canadian economy has been increasing commodity prices. By total area (including its waters), Canada is the second-largest country in the world -- after Russia. Canada is an energy and commodity super power. Combine its vast size with its small population (only 34 million people) and you have a density of only 8.5 people per square mile -- among the lowest in the world.

The mix of abundant resources and a small population grants Canada the comfort of knowing it will most likely never run out of whatever commodities it may need. This allows the country to be a net exporter of a wealth of materials. Canada is the U.S.'s largest trading partner as we import more oil from our neighbor to the north than any other country in the world.

In addition, the banking system in Canada is considered to be one of the most efficient and safest in the world. There are five large banks in Canada and a few second-tier players as well. According to a 2008 World Economic Forum Global Competitiveness Report, Canada has the best banking system in the world.

A final piece of stability (which is admittedly difficult to quantify) can be found in Canada's political system. Entrepreneur Paul-Andre Bosc of award winning winery Chateau des Charmes in Niagara-on-the-Lake, Ontario stated that, "While Canada is not a tax haven; the political system here is fair and consistent. For a country our size, with our natural resources, government policies here are not subject to wild variations compared to other countries of resources like Russia, China or Venezuela. Our system is quite sound.

Those may be some of the reasons that the iShares MSCI Canada Index ( EWC) is once again setting new recovery highs. EWC broke above resistance, closing yesterday at $33.67, on almost double its daily average volume. EWC should face its next resistance at $36.20, but it could go significantly higher if the U.S. dollar continues to weaken (which would send commodity and energy prices even higher). Place a stop at $28.80 in case the market reverses.

The CurrencyShares Canadian Dollar Trust ( FXC) is another way to invest in strong Canadian markets. The Canadian dollar is the seventh-most-traded currency in the world, accounting for 4.2% of all global foreign exchange transactions. The U.S. dollar/Canadian dollar pair is the sixth-most-traded currency pair in the world.

FXC just broke above a seven-week flat trading base. FXC closed Monday at $102.38. Should the Bank of Canada keep interest rates on hold at today's meeting, we could see FXC rise to $113 from here. The U.S. dollar has declined 21% relative to the Canadian dollar over the last two years. As Federal Reserve Chairman Ben Bernanke's unstated policy of devaluing our currency continues, an investment into the exchange of our largest trading partner is a wise idea. Place a stop at $95.85 on FXC for protection.

At the time of publication, Slusiewicz held no positions in any of the securities mentioned.

Jerry Slusiewicz has over two decades of professional investment experience. He has worked with individuals and institutions to manage monies for both short and long-term investment horizons. This extensive experience through various stock and bond market cycles enables him to offer a unique blend of professional investment counsel and personal service.

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