U.S. Dollar is Still The Currency to Play in this Cautious Market

The U.S. dollar took a back seat during Monday’s trading session as gold prices rose on the major stock market indexes heading downward, but relative to other currencies around the world, the greenback is still holding its own.

“The greenback soared against emerging-market currencies as investors made another stampede into haven assets on fears that the coronavirus will send economies into freefall,” an MSN report noted. “Losses in Asia were led by the Indonesia rupiah and Korean won, which are particularly sensitive to global growth. Both slid about 3% as the number of countries shuttering borders and imposing self-isolations soars. Thailand’s baht and the Malaysian ringgit dropped around 1% after S&P warned the epidemic could cost the Asia-Pacific region $620 billion in economic losses.”

It just shows during a black swan event, the good old U.S. dollar proves to be a safe bet while the markets around the world are getting roiled by the coronavirus outbreak.

“In an almost synchronized run for safety most assets are being sold for the dollar,” said Eugenia Victorino, head of Asia strategy at SEB AB in Singapore. “Korea is clearly in the frontline, but Indonesian and Indian assets are also taking the brunt.”

As the world scrambles for the safety of the U.S. dollar, the Federal Reserve responded in two in order to bring more liquidity to the market. Even with the central bank cutting rates to zero, the dollar is still climbing.

“The dollar is rallying on haven demand — markets are digesting the implication of job losses, a prolonged economic downturn,” said Christopher Wong, a senior foreign-exchange strategist at Malayan Banking Bhd.


^DJFXCMD data by YCharts

Investors looking to capitalize on further dollar strength can look to exchange-traded fund (ETF) exposure via funds like the WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU). UUP tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.

On the other hand, the actively managed USDU tracks the USD against a broader basket of developed and emerging market currencies, including China, India, South Korea, Switzerland, Australia, Mexico, the United Kingdom, Canada, Japan, and Europe.

USDU provides investors with

  • a broad, dynamic, and effective way of gaining exposure to the U.S. dollar against a basket of foreign currencies in an ETF structure.
  • an alternatives bucket as a broad-based diversifier as it exhibits strong negative correlations to international equity and bond portfolios.

For more market trends, visit ETF Trends.