ETF Trends
ETF Trends

Currency traders are having a hard time keeping up as an “international currency war” threatens to destabilize the currency status quo. Despite efforts to keep currencies low, some currency exchange traded funds (ETFs) may decline as currencies continue to appreciate.

Dr. Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), stated “there is clearly the idea beginning to circulate that currencies can be used as a policy weapon,” reports Julia Kollewe for The Sydney Morning Herald. “Such an idea would represent a very serious risk to the global recovery. Any such approach would have a negative and very damaging longer-run impact,” Dr. Strauss-Kahn adds.

Exports play a vital role in a country’s economic recovery and weaker currencies make it easier to sell goods abroad.

Brazil was the latest country to threaten intervention in its currency after Central Banks in Japan, South Korea, Switzerland and Taiwan have executed some currency manipulations in their own markets. Additionally, most of the world seems to be focusing on China’s artificially weak yuan. [Commodity Currencies Get an ETF.]

Eric Dutram for The Motley Fool singles out three countries that engage in “questionable” currency practices and the related ETFs that investors may want to keep an eye on if the global currency war continues.

  • WisdomTree Dreyfus Chinese Yuan Fund (NYSEArca: CYB). Some go so far as to estimate the yuan at 35% undervalued compared to the dollar. A recent bill that passed out of the House tries to force China’s hand, which could lead to some revaluation in the yuan.
  • Rydex CurrencyShares Japanese Yen Trust (NYSEArca: FXY). Japan has been trying to dump more yen into the market to prevent its currency from crossing the 80 yen to dollar mark.
  • WisdomTree Dreyfus Brazilian Real Fund (NYSEArca: BZF). Copious capital inflows from the large sale of PetroBras shares, growth in exports and moderating inflation have attracted traders to the Brazilian real.

The Canadian and Australian dollars are hovering at parity with the U.S. dollar, the Swiss franc is now stronger than the greenback, the Japanese yen is at a 15-year high and the euro has appreciated 17% since May, writes Simon Black for Sovereign Man. Countries that used to rely on the United States to buy up their goods are now in a bad position as a weakened U.S. economy and dollar has reduced the purchasing frenzy of the U.S. consumer. [U.S. Dollar ETFs Play Both Sides of the News.]

For more information on world currencies, visit our currency category. To find out how currency ETFs work, visit our Guide to Currency ETFs.

  • PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP)
  • PowerShares DB U.S. Dollar Index Bearish Fund (NYSEArca: UDN)

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.