Commodities pricing are rebounding. So is the Australian dollar and that combination of factors, along with some others, has been enough to lift the iShares MSCI Australia ETF (NYSEArca: EWA) 6.5% year-to-date. That makes the largest Australia exchange trading in the U.S. one of this year’s better performers among developed market single-country ETFs.
Like so many developed market central banks, the Reserve Bank of Australia (RBA) has been actively reducing borrowing costs in recent years. Australia’s benchmark lending rate is currently 2%. That is a record low for the world’s 12th-largest economy, but high by the standards of the rest of the developed world.
Related: Aussie Dollar ETF Under Pressure
The looser monetary policy could support the economy but weigh on the AUD. Consequently, investors may track the markets through currency-hedged ETFs that try to mitigate the negative effects of a weakening Aussie, including the iShares Currency Hedged MSCI Australia ETF (NYSEArca: HAUD) and Deutsche X-trackers MSCI Australia Hedged Equity ETF (NYSEArca: DBAU).
The CurrencyShares Australian Dollar Trust (NYSEArca: FXA), which tracks the Aussie against the U.S. dollar, is up 3.1% this year. However, the Aussie dollar remains a currency to watch.
FXA could be increasingly vulnerable as the monetary policies of the Fed and the Reserve Bank of Australia continue diverging. RBA recently cut Australia’s benchmark interest rates to a record low.