Currency ETFs: Why It Pays to Watch the Aussie Dollar
May 9th, 2012 at 11:24am by John Spence
Cracks in an ETF following the Australian dollar earlier this year was a warning sign to investors that U.S. stocks could be in for a choppy ride.
“Investors should be at least a little concerned by recent weakness in an ETF pegged to the Australian dollar since the currency has been a fairly reliable leading indicator for U.S. stocks,” ETFtrends reported in late March. [Australian Dollar ETF Performance is Caution Flag]
The currency ETF follows the movement of the Australian dollar versus the U.S. greenback.
Some technical analysts keep an eye on the Australian dollar as an indicator of global risk appetite. The currency is linked to sentiment on commodities and emerging markets.
The Australian dollar is nearing parity with the U.S. greenback after trading sharply lower in May.
“Australia’s dollar fell to its weakest level this year and bond yields reached record lows as concern mounted that Greek leaders will be unable to form a coalition government, reducing appetite for riskier assets,” Bloomberg News reported Wednesday.
“Risk is going to be on the back foot while the Greek squabbles continue,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia, in the article. “I don’t have a lot of optimism that these things will be resolved quickly. It’s pulling down many currencies like the Aussie, the kiwi and the Canadian dollar, which are more linked to global growth.”
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