The U.S. dollar has had its ups and downs this year. By investing in exchange traded funds (ETFs), currency traders may capitalize on this widening disparity in currency strengths without using forex or futures accounts.
An investor with a penchant for trading currencies may consider investing in currency ETFs, which are basically trusts that can be bought and sold through a traditional brokerage, remarks Nick Thomas for Jutia Group. These ETFs are listed on the NYSE Arca, can be traded like stocks and cover a basket of currencies or country-specific currencies. (ETF Trends’ guide to currency ETFs).
Additionally, providers have also issued currency ETF vehicles that are short, or ultra-short, but most come in the standard “long” ETF.
So far this year, the CurrencyShares Australian Dollar Trust (NYSEArca: FXA) is perhaps the best performer, up 31.1% year-to-date. WisdomTree Dreyfus Brazilian Real (NYSEArca: BZF) Other top performers include CurrencyShares Swedish Krona Trust (NYSEArca: FXS), up 11.6% year-to-date, and CurrencyShares Mexican Peso Trust (NYSEArca: FXM), up 13.1% year-to-date. (How to use foreign currency ETFs to your advantage).
Essentially, most countries other than the United States are preserving the value of their currency, and an investor could have hedged against the falling dollar with some foreign currency ETF allocations. But just because the U.S. dollar is now at a monthly high, it doesn’t mean there aren’t options left. The currency market is one that is always moving and shifting, and some feel that the dollar’s gain this morning is just temporary.
The U.S. Dollar Index didn’t reach its 50-day moving average, and Thomas goes so far as to suggest that it may have formed a double bottom, which means it may bounce again until reaching its 50-day moving average. Thomas suggests investors to assume the dollar in a bear market with continued downward trends punctuated by short rallies. (Sector Highlight: U.S. dollar).
For more information on the dollar, visit our U.S. dollar category.
- PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP): down 9% year-to-date
- PowerShares DB U.S. Dollar Bearish (NYSEArca: UDN): up 8.1% year-to-date
Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.
Max Chen contributed to this article.