Currency ETFs: Can They Tell You About an Economy? | ETF Trends

Some major currencies are low, low, low now. Case in point: the Chinese yuan. It certainly helped boost exports, but if the yuan strengthens, it doesn’t necessarily follow that China’s exchange traded funds (ETFs) will take a hit.

This holds true for all currencies, really. Gary Gordon for ETF Expert has a few points illustrating that there isn’t always a direct relationship between a country’s currency strength and its economic growth:

  • The Japanese yen stayed strong throughout the financial crisis, hurting its export-dependent economy that has a low personal consumption and high savings rate. The yen has finally started to weaken, boosting ETFs like iShares MSCI Japan Index (NYSEArca: EWJ). [Strategies to Play the Yen.]
  • The U.S. dollar gained 10% in the last four months, but that hasn’t hurt us any. In fact, the major market indexes have soared to new recent milestones.
  • The euro is in the dirt right now, but that’s not paying off much for the eurozone denizens are its economy. [Our Guide to Currency ETFs.]

All this to say: whether a currency is weak or strong, don’t buy, sell or make predictions about single-country ETFs based on that information alone. Consider the fundamentals and, most importantly, follow the trends. [How to Follow Trends.]

For more stories about Japan, visit our Japan category.

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.