Canadian Finance Minister Jim Flaherty surprised many observers, including me, by passing over Bank of Canada Senior Deputy Governor Tiff Macklem in favor of former BoC chief researcher and current CEO of federal trade agency Export Development Canada Stephen Poloz as the central bank’s next governor.

The Canadian dollar softened upon the May 2 announcement, as the market perceived that Mr. Poloz would be more prone to an interest-rate cut than the departing Mark Carney and his close associate and now-former successor-in-waiting Mr. Macklem.

Indeed, Mr. Poloz, who in his research role at the BoC was instrumental in establishing the framework that led to policies now widely credited with helping Canada avoid the worst of the Great Recession, has publicly warned that the rising Canadian dollar was harming the economy, mainly because it exacerbated the widening gulf between Eastern manufacturing-based economies and Western commodity-based ones.

Mr. Poloz has argued that the Bank of Canada should pay more attention to terms of the loonie-greenback exchange when setting interest rates.

Mr. Carney will run one more monetary policy meeting, with the next interest-rate decision due on May 29. Mr. Poloz, who has argued that the Bank of Canada should pay more attention to terms of the loonie-greenback exchange when setting interest rates, will be in charge of the decision that comes July 17.

The BoC’s benchmark rate is already sitting at the undeniably accommodative 1 percent level, where it’s been since September 2010. The central bank has also pushed it as low as it can go, to the “zero bound,” or 25 basis points, in recent years. During the Great Recession central banks around the world, including Canada’s acted in concert to flood the global economy with liquidity to prevent a deflationary spiral.

Times are not that dire now. But Canada is certainly experiencing something of a slowdown.

In 2009 Canada’s gross domestic product (GDP) contracted by 2.8 percent. During 2010, the first full year of recovery, it expanded by 3.2 percent, as aggressive policy action in the form of trillions of dollars in stimulus from governments around the world and sharp cuts to interest rates by central banks succeeded in breaking the fall.

“The Great Recession” that afflicted most of the world was only mild by comparison in Canada, and the recovery for the Great White North was quick.

About 430,000 Canadians lost their jobs over the course of three quarters-plus from October 2008 through July 2009. But by August 2009 employment began rising again and has continued to build, reaching a peak in March 2012 with the addition of 78,000 jobs and highlighted too by an expectations-beating 50,000 new positions in February 2013.

Canada added approximately 900,000 jobs from August 2009 through February 2013, reducing the unemployment rate from 8.7 percent to 7 percent.

But growth slowed to 2.6 percent in 2011 and to 1.8 percent in 2012. And last week, in the April edition of its World Economic Outlook (WEO), the International Monetary Fund (IMF) cut its forecast for Canadian GDP growth in 2013 to 1.5 percent. That’s down from a prior estimate, released in January, of 1.8 percent, which was down from 2.0 percent in the October 2012 WEO.

And Statistics Canada reported in April that the Great White North shed 54,500 jobs in March 2013, the biggest decline in employment since February 2009, near the depths of the Great Recession. Canada’s unemployment rate rose for the first time in five months, to 7.2 percent from 7 percent.

Should he choose to do so Mr. Poloz can “announce his presence with authority” by reducing the BoC’s benchmark overnight rate, therefore providing more stimulus. This does risk undoing some of the necessary work Mr. Flaherty and Mr. Carney have done to discourage borrowing and encourage Canadians to strengthen their personal balance sheets.

At the same time, faster growth would lead to more employment, and that would be good for managing debt burdens as well.

The conundrum is this for US-based investors with positions in dividend-paying Canadian equities: A cut would reduce the differential between benchmark US and Canadian interest rates and thus, theoretically, weaken the Canadian dollar versus the US dollar.

But a lower benchmark rate would also, theoretically, provide more credit for businesses to expand and hire, stimulating growth.

The fact is, however, that 1 percent or 0.75 percent is not likely to make much of a difference when it comes to the loonie-greenback exchange rate.

Why So Lofty?

Despite the fact that speculative bets against it climbed significantly in April, the Canadian dollar weakened by just a few cents.

Numbers from the US Commodities Futures Trading Commission showed the value of the short positions against the loonie jumped by USD400 million to USD7.4 billion as of April 16, 2013. That’s an indication of rising bearishness; in fact the Canadian dollar was the most shorted major global currency after the Japanese yen.,

Although there are concerns about the state of the Canadian housing market and record levels of consumer debt, Canada’s economic fundamentals and the outlook for the US economy, still Canada’s largest trading partner, don’t support such a dim view.

It’s likely that analysts’ bearish views are colored by the rout suffered by gold in recent weeks as well as weaker prices for oil. Weaker-than-expected economic data from China in early April sparked the stampede from commodities, as the yellow metal suffered its sharpest one-day drop in 30 years and crude, copper and other metals tumbled as well.

But the loonie has held up relatively well, thank you very much, for three key reasons, chief among them the fact that oil and metals account for only 20 percent of Canadian exports.

Meanwhile, other commodities, such as natural gas and wood, are enjoying solid rallies, the latter on a recovery in the US housing market. Chemicals and foodstuffs also look good in a world where agriculture and farming are becoming increasingly important. The US auto sector, to which Canada is a major contributor, is also on the rebound.

About half of Canada’s export base is in fine shape.

Finally, foreign investors continue to view Canada as an exemplar of political, fiscal and monetary stability. Recent data from the International Monetary Fund indicates foreign central banks continue to diversify their currency holdings beyond the traditional US dollar, Japanese yen, Swiss franc, British pound sterling and euro mix.

The March 29, 2013, International Monetary Fund (IMF) report on its database of global reserves, the Composition of Foreign Exchange Reserves (COFER), showed that the share of central bank reserves tied up in dollars and yen declined during the fourth quarter of 2012, while the share devoted to the euro was unchanged.

Meanwhile, the share invested in the category labeled “other”–which includes non-traditional currencies such as the Canadian dollar and the Australian dollar–surged to an all-time high of 6.12 percent.

The “big five” still command the lion’s share of central bank foreign currency holdings. But the trend toward the loonie and the aussie–which share in common underlying economies focused on resource production and export as well as supporting governments with relatively low levels of debt–is clear.

“Other” surpassed the Japanese yen to take fourth place during the fourth quarter of 2009 and leapt over the British pound for third place in the third quarter of 2010.

The US dollar and the euro remain in first and second place, respectively, but “other’s” share has grown substantially in the 21st century, from 1.49 percent of allocated reserves at the end of 2000 to 5.49 percent in 2011 to the present accounting above 6 percent as of Dec. 31, 2012.

An August 2012 IMF report had found that the loonie and the aussie should be broken out from the group of currencies reported as “other.” A March report in The Wall Street Journal indicates this will happen by June 30, 2013.

“The IMF is expanding the list of currencies separately identified in the COFER template,” an IMF spokeswoman told the WSJ. “The implementation of the revised COFER Report Form, with separate identification of the Australian dollar and Canadian dollar, is scheduled for the first half of 2013.”

It’s important to note that the IMF is simply breaking out data for the loonie and the aussie. This alone should have no substantive impact, as it’s an after-the-fact accounting of actions central banks have already taken.

A new line-item doesn’t make these currencies any more or less fundamentally attractive. But it does acknowledge the fact that the Canadian dollar, as well as the Australian dollar, has achieved a certain critical point in the eyes of central banks around the world.

In short, the loonie below parity represents a strong buying opportunity in a long-term context.

Moves to Make

If you’re a US-based investor who’s long Canadian equities you’re long the Canadian dollar. Share-price appreciation in and dividends paid by your holdings are augmented by positive moves in the currency.

If you have capital to allocate, the first place to start is with this month’s Best Buy selections, Dundee REIT (TSX: D-U, OTC: DRETF) and Parkland Fuel Corp (TSX: PKI, OTC: PKIUF).

Dundee, which recently announced a first-ever distribution increase, has streamlined its portfolio in recent months and is now solely focused on high-quality office space leased to high-quality tenants.

Diversification comes from geography and tenants, as it owns space in key central business districts across Canada occupied by large corporations as well as the federal and provincial governments. Dundee REIT is a solid buy for stable income and long-term growth up to USD39.

Parkland is showing solid progress with its “Parkland Penny Plan,” a five-year strategic effort that aims to double 2011 normalized earnings before interest, taxation, depreciation and amortization (EBITDA) of CAD125 million by the end of 2016.

Parkland took a big hit after management reported fourth-quarter and full-year 2012 results on Feb. 26, despite the fact that actual numbers were in line with management’s monthly updates leading to the quarterly and annual reports.

And that’s despite the fact that management boosted the fuel distributor’s dividend for the first time since it converted from an income trust to a corporation in January 2011. Parkland is a buy under USD18.

A great way to play the Canadian lumber export trade is Aggressive Holding Acadian Timber Corp (TSX: ADN, OTC: ACAZF).

Acadian reported a significant improvement in its fourth-quarter 2012 numbers, as sales volumes rose by 22 percent and cash flow surged 34.2 percent. Management also provided positive commentary on demand for logs used in homebuilding, which had been a major headwind in recent years.

Acadian benefitted from rising activity in the US housing market. Seasonally adjusted annualized US housing starts of 954,000 in December 2012 were 37 percent above year-ago levels, while permits were up 29 percent year-over-year. For the year housing starts climbed 28 percent to 780,000 from 609,000 in 2011.

US home pricing has clearly moved off the early 2012 bottom, while statistics from CoreLogic show home prices nationwide, including distressed sales, moved up 7.4 percent year over year in 2012. This represents the biggest increase since May 2006.

Recovering home prices should encourage potential buyers standing on the sideline. And mortgage rates remain at historically low levels. Housing affordability is at near-record highs, and mortgage underwriting standards are becoming more accommodative.

Based on a consensus forecast that management conceded “is somewhat of a moving target,” Acadian expects steady growth in housing starts through 2015 at levels “expected to result in very strong markets for timber aimed at solid wood products markets.” The company will also enjoy the benefits of higher prices for its products.

Acadian Timber, which will report results for the first quarter of 2013 on May 9, is a buy under USD14.

Long-suffering Norbord Inc (TSX: NBD, OTC: NBRXF) reported first-quarter net income of CAD67 million and earnings per share CAD1.25 on total sales of CAD365 million. The manufacturer of oriented strand board, or wood panels, for use in housing construction broke even during the first quarter of 2012 on sales of CAD253 million.

And the board approved a new variable quarterly dividend targeted at CAD0.60 per share, Norbord’s first quarterly payout in more than four years. Management “strong” free cash flow for 2013, helped by a recovering US housing market.

“Norbord now has strong liquidity and is deleveraging quickly with our net debt to total capitalization moving towards the bottom of our target range,” noted CEO Barrie Shineton.

Norbord, now sporting a yield of 1.8 percent, is a buy for aggressive investors up to USD30.

Potash Corp of Saskatchewan (TSX: POT, NYSE: POT) reported that first-quarter net income per share ticked up to CAD556 million, or CAD0.63 per share, from CAD491 million, or CAD0.56 a year ago on a 2 percent rise in revenue to CAD2.1 billion. Management attributed the increase to strong shipments and forecast that demand will remain robust for the rest of the year.

Sales volumes increased 78 percent during the first quarter versus year-earlier levels, as domestic shipments from North American potash producers rose 56 percent. Potash helps crops withstand drought and strengthens roots.

Management also noted during its first-quarter earnings announcement that it was abandoning its effort to acquire Israel Chemicals Ltd in the face of opposition to the deal from workers and Israeli politicians.

Potash Corp, which announced a 33 percent increase to its quarterly dividend in January, is a buy under USD42.

Longtime Aggressive Holding Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF) provided more evidence of its high quality with fourth-quarter numbers that belied what remain historically low natural gas prices.

Peyto is blessed with low-cost reserves and production, and management’s conservative approach guarantees what comes out of the ground makes it to market. That’s preservation of value.

Fourth-quarter production soared 26 percent, or 17 percent per share, to 49,754 barrels of oil equivalent (BOE) per day. Reserves per share were increased by 15 percent, pushing Peyto’s net asset value under extremely conservative assumptions to at least USD25 per share.

And the company maintained one of the longest reserve lives in its industry at 15 years for proven reserves alone (90 percent or better chance of development).

Peyto’s calling card for conservative investors who want energy exposure is that it can profitably produce with natural gas at USD1. That’s strong support against further downside.

Any upside from here is not guaranteed to result in a dividend increase, even with a fourth-quarter payout ratio of 28 percent. Management, again, is conservative. And the stock is trading above our longstanding buy target of USD25. But Peyto is a strong buy on any dip to that level.

Aggressive investors willing to speculate on a stock that hasn’t followed the rally in the commodity price of depressed levels should take a look at Encana Corp (TSX: ECA, NYSE: ECA), Canada’s biggest natural gas producer.

Encana management is not in Peyto’s league. But at these levels valuations are compelling, and there’s a growing disconnect between gas prices and the stock price. Natural gas prices are up more than 30 percent since mid-February, but Encana shares have risen just 4 percent during the same period.

Natural gas prices will likely dip due to lower demand during the May-June “shoulder” period between the heating and cooling seasons. And lower coal prices are making that fuel more attractive as a feedstock for electric power generation.

There’s also the question of leadership, as Encana is currently in the process of finding a new CEO.

But these are short-term factors. The first is by definition seasonal, the second is mitigated by the effort to retire coal-fired plants in favor of cleaner power. The third could go either way, but hopefully the new leader will make better capital allocation decisions and communicate better with the investing public.

Encana is a speculative play on a narrowing of the share price-natural gas price differential for aggressive investors up to USD20.

A quick and easy way to play the loonie is to buy CurrencyShares Canadian Dollar Trust (NYSE: FXC), an exchange-traded fund (ETF) that tracks movements in the Canadian dollar. The ETF is trading at USD98.64 as of this writing. CurrencyShares Canadian Dollar Trust is a buy under USD100.