The Canadian dollar, going the way the Bank of Canada (BoC) would like these days, posted its worst January since at least 1972.

The BoC, anxious to stimulate an economy that’s slowed recently after outperforming before, during and immediately after the Great Financial Crisis/Great Recession, under new Governor Stephen Poloz has backed off a tightening bias articulated by former Governor Mark Carney.

Its first move after a record-breaking term of stasis for its benchmark overnight lending rate could very well be to cut it from the current level of 1 percent.

The BoC, recognizing that commodity prices have retraced gains piled up post-2009 and that China’s investment-driven growth model will soon shift to a consumption-based model, wants to make Canada attractive to automobile and pharmaceutical manufacturers and cereal makers, for example, to offset softer conditions for its commodity-focused sectors.

What was an already narrow “rate spread” compared to the US federal funds rate at the “zero bound” could close even further.

At the same time, the US Federal Reserve is winding down its extraordinary “quantitative easing,” this month announcing another USD10 billion reduction from its original monthly plan to purchase USD85 billion worth of agency mortgage-backed securities, with the commitment now standing at USD65 billion per month, and falling.

Meanwhile, the US economy is looking very good relative to the rest of the world right now. Canada’s profile compared to its neighbor doesn’t look that great. The traditional pick-up in Canadian economic activity that goes with a healthier US economy hasn’t happened to the same degree as in the past, as the US recovery hasn’t included a big ramp-up in imports.

Canada must diversify its trading relationships, and its leaders are working on agreements with Asian countries to accomplish this. I expect that as the US gains more momentum we’ll see some of the old patterns re-emerge, though Canada must diversify its trading relationships. And its leaders are working on agreements with Asian countries to accomplish this.

But for now Canada probably needs an accommodative monetary stance.

Should Canadian economic growth continue to disappoint, and if the Fed continues to tighten and the BoC actually moves to cut its benchmark rate, there could be further downside for the loonie.

The Canadian dollar recently bottomed at USD0.8952 on Jan. 29, 2014, but has rebounded slightly to USD0.9062 as of midday Feb. 7, 2014.

The loonie sold off hard in January after the BoC reduced its inflation forecast and cited the currency’s strength as a headwind to non-commodity exports.

The BoC expects Canadian gross domestic product (GDP) to expand by 2.3 percent in 2014, accelerating from forecast growth of 1.6 percent in 2013. StatisticsCanada reported that GDP expanded by 0.2 percent in November from October to an annualized CAD1.61 trillion, the fifth consecutive month of growth but the slowest rate since August.

US GDP grew by an annualized 3.2 percent during the fourth quarter of 2013, accelerating from 0.1 percent during the fourth quarter of 2012.

Recent data from the US Commodity Futures Trading Commission shows that short traders have decreased their positions against the Canadian dollar in recent weeks, though this may be a function of technical factors. Sentiment among the short-term minded remains set against the loonie.

At the same time, longer-term investors, including global central banks, are for the Canadian dollar. The International Monetary Fund’s (IMF) most recent Currency Composition of Official Foreign Exchange Reserves (COFER) report, updated Dec. 31, 2013, revealed that holdings of Canadian dollars rose nearly 2.4 percent during the third quarter to USD112.5 billion as of Sept. 30, 2013, compared to USD109.9 billion as of June 30, 2013.

The loonie has seen a 23.5 percent boost among 145 reporting countries since the fourth quarter of 2012.

It seems that Canada’s elevated status in the eyes of global beholders hasn’t slackened much. It’s still closer than any other developed country to a balanced budget, and it remains well positioned to take advantage of the recovery in the global economy.

And central banks, continuing to diversify their currency holdings, are adding loonies.

Longer-term factors, such as the fiscal health of the Canadian federal government, the potential for Canada’s trading relationships with emerging Asian nations that are still hungry for resources and its everlasting ties with what remains the world’s largest economy, suggest that softness in the loonie represents a buying opportunity.

And going long dividend-paying Canadian equities is a great way to enjoy the eventual rebound in multiple ways, through the impact of an appreciating currency on regular payouts as well as for the effect on capital-appreciation.

For now, however, there are also ways to profit from weakness.

Commodities

A positive consequence of the loonie’s decline is that Canada-based oil and gas producers’ competitiveness will increase, as their expenses are incurred in Canadian dollars while prices for their output are increasingly benefitting from better and more diverse transportation infrastructure that’s eating away at recently steep differentials between Canadian oil and gas prices and US and global benchmarks.

Energy producers with strong production-growth profiles should be particularly well placed to benefit from the currency dynamic.

Our top picks include Aggressive Portfolio Holdings ARC Resources Ltd (TSX: ARC, OTC: AETUF), Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF), Enerplus Corp (TSX: ERF, NYSE: ERF) and Peyto Exploration and Development Corp (TSX: PEY, OTC: PEYUF).

ARC recently reported that production reached a company-record average of 100,883 barrels of oil equivalent per day (boe/d) for the fourth quarter, up 5.3 percent compared to the 95,725 boe/d average for the fourth quarter of 2012.

Full-year production averaged 96,087 boe/d, up 2.7 percent compared to 2012.

ARC, one of our core energy Holdings, continues to build value for investors. And 2014 is on track to be a year of strong production growth. ARC Resources, as we detail in Portfolio Update, is now a buy under USD28.

Enerplus Corp (TSX: ERF, NYSE: ERF) reported that 2013 output surpassed its own guidance, as average production grew by over 9 percent to 89,800 barrels of oil equivalent per day (boe/d), ahead of management guidance of 89,000 boe/d. Fourth-quarter production averaged 94,200 boe/d.

Based on production results for 2013 and management’s guidance for solid growth in 2014, Enerplus is now a buy under USD18.

We remain bullish on Aggressive Holding Vermilion Energy Inc (TSX: VET, NYSE: VET), whose global footprint mitigated the impact of differentials but also limits potential upside based on loonie weakness.

Other How They Rate Oil and Gas names with upside potential include oil sands-focused MEG Energy Corp (TSX: MEG, OTC: MEGEF) and Pengrowth Energy Corp (TSX: PGF, NYSE: PGH), which would see meaningful funds flow per share growth with further loonie weakness.

MEG Energy, on the verge of significant production growth with the advancement of development at its Christina Lake oil sands project, is a buy under USD32.

Pengrowth, which is on track to exceed 2013 production guidance on improved conventional efficiencies, is a buy under USD5.

Suncor Energy Inc (TSX: SU, NYSE: SU), Canada’s biggest oil producer, has a relatively high share of unhedged production, putting it in good position to benefit from accelerating economic growth and recovering heavy crude prices.

Suncor reported fourth-quarter operating earnings of CAD973 million, or CAD0.66 per share, as oil sands output for the period established a company record.

Suncor, followed up a recent 50 percent dividend increase with a 15 percent boost announced in January, is a buy under USD36.

Other oil and gas producers with relatively high levels of unhedged production include Baytex Energy Corp (TSX: BTE, NYSE: BTE) and Bellatrix Exploration Ltd (TSX: BXE, NYSE: BXE).

Baytex, which forecast production growth of 6 percent in 2014, is a buy under USD42.

Bellatrix posted a 2013 exit production rate of 38,000 boe/d, a 95 percent year-over-year increase. And first-quarter 2014 production is tracking to 40,000 boe/d. Bellatrix is a buy under USD6.

Other domestic commodity producers with unhedged output  include Potash Corp of Saskatchewan (TSX: POT, NYSE: POT) and Teck Resources Ltd (TSX: TCK/B, NYSE: TCK).

Potash Corp’s fundamentals are improving, though the aggressive bidding that characterized the third and fourth quarters of 2013 is likely to result in low shipment prices for the first quarter of 2014.

But new orders are being booked higher prices than at the end of 2013, and cash flow last year was solid. With the potash market showing decent momentum, Potash Corp represents good value at these levels, with a yield of 4.5 percent and a consistently growing dividend rate. Potash Corp is a buy under USD35.

Teck Resources’ fourth-quarter numbers should benefit from stronger-than-expected base metal prices, amplified by the favorable impact of a weaker Canadian dollar. Management is looking at boosting zinc output over the next couple years, as developing supply constraints create favorable pricing conditions.

Teck discontinued its dividend from November 2008 until July 2010 as it dealt with the impact of the Great Financial Crisis/Great Recession. Since it reinstated the payout at CAD0.20 per share the quarterly rate has grown to CAD0.45. Teck Resources is a buy under USD32.

Industrials, Transports, Eateries

Magna International Inc (TSX: MG, NYSE: MGA), a global auto parts and systems manufacturer that we added to the CE Portfolio in December 2013, and fellow Aggressive Holding Extendicare Inc (TSX: EXE, OTC: EXETF), generate significant revenue from foreign markets.

North America remains the key driver of Magna’s results, accounting for approximately three-quarters of total operating earnings over the past four years. But the Rest of World segment is its fastest-growing business.

Third-quarter results were solid, highlighted by more progress in Europe. Sales for the period rose to USD8.34 billion from USD7.41 billion a year ago, topping expectations.

North American, European and RoW production sales, as well as complete vehicle assembly sales and tooling, engineering and other sales, were all higher on a year-over-year basis. Magna International is a buy under USD90.

Extendicare, meanwhile, is currently weighing alternative means of separating its US from its Canadian operations due to ever-increasing regulatory burdens south of the border. The revenue mix, weighted 64 percent to the US in 2012, will be a positive as earnings are reported in Canadian dollars. Extendicare remains a buy under USD7.

Exchange Income Corp (TSX: EIF, OTC: EIFZF) generated about 45 percent of its 2012 revenue from the US. The acquisition-oriented company is focused on oppor­tu­ni­ties in the indus­trial prod­ucts and trans­porta­tion sec­tors, in par­tic­u­lar busi­nesses that are suited for pub­lic mar­kets, except for their size.

Since its inception Exchange Income has acquired and integrated 11 companies. It’s a well-diversified portfolio that generates stable and defensible earnings. Management also has a track record of adding accretive acquisitions to the mix, which supports earnings and dividend growth.

Exchange Income Corp, which is yielding 7.6 percent, is a buy up to USD22.

Industrial names that will benefit from improving North American growth for whom a weakening loonie is also a positive include Conservative Holding TransForce Inc (TSX: TFI, OTC: TFIFF), which has a lot of opportunities to boost revenue through relatively low-cost acquisitions in a still-fragmented North American logistics market, Canadian National Railway Co (TSX: CNR, NYSE: CNI) and Canadian Pacific Railway Ltd (TSX: CP, NYSE: CP).

The International Air Transport Association (IATA) has forecast strong airline profits in 2014.

But the loonie’s steep decline could have a negative impact on earnings, as fuel, which is priced in US dollars, accounts for the largest share of airlines’ expenses. Costs will rise and likely be passed on to passengers. And that could crimp the momentum WestJet Airlines Ltd (TSX: WJA, OTC: WJAFF) has enjoyed since the end of the Great Financial Crisis/Great Recession.

WestJet reported 7.6 percent fourth-quarter revenue growth to CAD926.4 million, as passengers flown grew by 5.6 percent to 4.56 million. Management also boosted the quarterly dividend rate by 20 percent to CAD0.12 per share. WestJet is now a hold.

Tim Hortons Inc (TSX: THI, NYSE: THI) has a growing US presence, though expansion efforts south of the border for the iconic Canadian coffee and donuts retailer have been fitful.

The stock, however, has sold off by nearly 9 percent in Canadian dollar terms and 13 percent in US dollar terms thus far in 2014, and it looks like a solid value at these levels.

The company has boosted its dividend six times since its first declaration in July 2006, growing the payout from an original quarterly rate of CAD0.07 per share to the CAD0.26 it paid on Dec. 10, 2013, with zero cuts.

And Tims is on track for another increase of greater than 10 percent, which will likely be announced along with fourth-quarter and full-year 2013 results on Feb. 20, 2014.