The Reserve Bank of Australia took its turn in the global central bank limelight during Tuesday’s Asian session when it pared Australia’s benchmark interest rate by 25 basis points to a record low of 2.25%.
RBA’s decision sent the Australian dollar down 1.7% against its U.S. counterpart. Trading around 76 cents against the greenback, the Aussie is close to reaching RBA Governor Glenn Stevens’s goal of 75 cents against the U.S. dollar.
The news is likely to affect the CurrencyShares Australian Dollar Trust (NYSEArca: FXA), an ETF that finds itself in an already precarious position following a spate of previous RBA rate cuts and amid a global rout in commodities prices. Due to Australia’s status as a major gold-producing nation, FXA should be a beneficiary of higher gold prices, but that hasn’t been the case this year as the Aussie ETF has tumbled 4.5% even as gold prices have risen. [Eyes on the Aussie ETF]
With Stevens and the RBA eying further downside for the Aussie, the ProShares UltraShort Australian Dollar (NYSEArca: CROC) merits consideration. CROC, which attempts to deliver twice the daily inverse performance of the AUD/USD pair, is up 8.5% this year.
“Commodity prices have continued to decline, in some cases sharply. The price of oil in particular has fallen significantly over the past few months. These trends appear to reflect a combination of lower growth in demand and, more importantly, significant increases in supply,” according to a statement from RBA.
After falling 4.7% last year, the iShares MSCI Australia ETF (NYSEArca: EWA), the largest Australia ETF, is up nearly 1% this year. With a combined weight of almost 20% to the materials and energy sectors, EWA has been hampered by declining commodities prices, which have trumped the steadily falling Aussie.
Although Australia’s interest rates reside at a record low of 2.25%, those are high by the standards of the developed world and enough to cement Australia’s as one of the highest-yielding advanced economies in the world. EWA has a trailing 12-month yield of 4.86%. [Say G’Day to Australia ETFs]
Another ETF that could be stirred by the RBA news is the SPDR MSCI Australia Quality Mix ETF (NYSEArca: QAUS). QAUS debuted in June as part of a six-ETF suite of single-country ETFs from State Street Global Advisors emphasizing the quality factor. QUAS and its five stablemates track MSCI Indices. The quality factor “captures excess returns to stocks that are characterized by low debt, stable earnings growth and other ‘quality’ metrics,” according to MSCI.
QAUS, which has a 30-day SEC yield of almost 4.2%, allocates a combined 23% of its weight to the materials and energy sectors.
SPDR MSCI Australia Quality Mix ETF
ETF Trends editorial team contributed to this post.
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.