4 Currency ETFs for a Falling Dollar
December 27th 2010 at 12:00pm by Tom Lydon
Despite recent strength, the greenback just isn’t what it used to be. Historically, the dollar is still on the weak side, but with exchange traded funds (ETFs), you can counteract some of the weakness.
According to John Waggoner for USA Today, there are several factors that contribute to the dollar’s value on the currency exchange:
- Pessimism. Investors pile onto the dollar during any perceived threat to foreign currencies.
- Interest Rates. Money goes to countries with higher interest rates – investors get more return out of their buck.
- Supply. As a country prints out more money into the system, the currency will take a dive.
The Federal Reserve stated that it will print out $600 billion to purchase Treasury debt, which will keep interest rates low. Consequently, investors would look to the stock market, housing or other currencies for better returns. In turn, higher housing and stock prices would lull people into feeling wealthier thus spending more. The depreciated dollar would also make U.S. exports easier to sell abroad. [Your Currency ETF Questions Answered.]
However, another European currency crisis in the making has pushed investors back to the dollar. [ETFs Fall Despite Ireland’s Bailout.]
If you believe in the dollar’s continued weakness, consider these three options:
- CurrencyShares Swedish Krona ETF (NYSEArca: FXS). Sweden’s debt-to-GDP was around 39% last year, as compared to 83% for the U.S.
- CurrencyShares Australian Dollar Trust (NYSEArca: FXA). Australia has boosted its interest rates as its economy strengthens on increased demand for commodities from China. Some believe that the Aussie dollar may be even too expensive now that everyone wants it.
- CurrencyShares Canadian Dollar Trust (NYSEArca: FXC). Canada also benefits from high commodity demand and a prudent fiscal policy.
- WisdomTree Commodity Currency Fund (NYSEArca: CCX): Own all the currencies of major commodity-producing countries in one ETF.
For more information on currencies, visit our currency ETFs category.
Read the disclaimer; Tom Lydon is a board member of Rydex|SGI.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.