ETFs You Can Turn to While the Dollar Falls Off

There is no action without consequences. At least the old adage has proven itself once again as the U.S. dollar, and related exchange traded funds (ETFs), is negatively affected by robust government spending policies.

The U.S. dollar depreciated against each of the 16 most-active currencies since March 5 as investors worried over the nation’s ability to fund the budget deficit, reports Candice Zachariahs for Bloomberg. Investors are turning to cyclical currencies with strong balance sheets, such as the Norwegian Krone and Canadian dollar.

Treasury yields in between the 2- and 10-year notes increased to a record 2.793%, reflecting investors’ demand for higher premiums on longer government loans and the possibility of inflation eating away returns.

Stephen Gallo, head of market Analysis at Schneider Foreign Exchange, thinks the dollar, which depreciated 5% against the euro, will continue to drop in value, according to Moneynews. Currency traders are responding to risk appetite and the current trend is the pullback of the dollar.

Other experts are also bearish on the dollar. During global recessions, deleveraging and investor repatriation usually strengthens the dollar. But as the global economy bottoms out, the dollar will begin to depreciate, experts say.

Here are some ways to hedge the falling value of the dollar, but there are many currency ETFs available, so be sure to look around:

• PowerShares DBG10 Currency Harvest (DBV): up 10.2% year-to0date

• CurrencyShares Canadian Dollar Trust (FXC): up 9.4% year-to-date

• PowerShares DB US Dollar Index Bearish (UDN): up 2.5% year-to-date

For more stories on currencies, check out our currency ETF category.

Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.

Max Chen contributed to this article.