How a Weak Dollar Helps ETFs and You

June 18th at 2:00pm by Tom Lydon

Over the past few days, the talk on the Street has been revolving around the direction of the U.S. dollar and how it has been influencing the overall markets and exchange traded funds (ETFs).  Could a weak dollar be something we actually need?

Loius Basenese of Daily Markets believes so and gives the following arguments why:

  • The dramatic shift in the balance of power that could benefit other countries.  Emerging markets, especially Brazil, Russia, India and China, better know as the BRIC nations, is giving developed nations a run for their money and is slowly eating away at the power of the United States’ economy.
  • A weak dollar will make U.S. goods cheaper to foreigners and will, in turn, eat away at our massive budget deficit.
  • A weak dollar benefits U.S. tourism – foreigners will be able to come here and spend copious amounts of money, thanks to more favorable exchange rates. If Americans aren’t spending, at least perhaps we can coax other countries to buy our goods.
  • We don’t really control the fate of our currency, it lies in foreign hands – think China and Russia in particular – because of the massive amounts of our debt that they own.

Regardless of what happens to the world’s reserve currency, there are ways to protect yourself against a falling dollar.  Some of methods include investing in commodities, focusing on companies that do at least 25% of their business overseas and looking at international companies that do the majority of their business in foreign countries.  Then there is always the ETF way to go.

  • PowerShares DB US Dollar Index Bullish (UUP): is down 2.9% year-to-date

  • PowerShares DB US Dollar Index Bearish (UDN): is up 1.9% year-to-date.

For more stories on the U.S. Dollar, visit our U.S. dollar category.

Kevin Grewal contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.