By Tom Bradley

That’s my answer when asked where the dollar is going.

As regular readers know, I’m not short on opinions, nor is it the case that I’m not well informed on the economic and political forces at work. I just think predicting currency movements is impossible to do.

In this week’s Economist magazine, the Buttonwood column is about the currency markets. It provides some insight into what’s going on, but what it does more than anything is confirm that I will never know the answer to the dollar question.

Take your pick as to which of the factors discussed in the column will hurt or help the U.S. dollar.

• The U.S. government’s unconstrained resolve to fix the economy by printing money and running big deficits.
• The disappearance of the ‘carry trade’, which in previous years was widely used by hedge funds and other financial institutions.
• Higher real yields (after inflation) in the U.S. than in Canada, Japan and the U.K.
• Investors around the world increasing their appetite for risk.
• The shrinking U.S. trade deficit.

Reinforcing my confusion was a story in the Globe and Mail yesterday on how the University of Toronto lost upwards of $600 million when a currency hedge went against them. The U of T funds hedged their U.S. dollar exposure back into Canadian dollars when the loonie was trading above par. I know a few of the people that are involved with University of Toronto Asset Management and they are experienced and scary smart.

The only way they’re not smarter than me is they didn’t say, “I don’t know”.