Monday November 23, 2009
"While we could see a short-term rally, I'm growing more convinced that the dollar is heading much lower," says Ron Rowland. In Money & Markets he looks at ETFs to play this trend.
"In just the last eight months, the U.S. Dollar Index (DXY), which measures the strength of the dollar against a basket of major currencies, plunged more than 15%.
"One of the main reasons this trend is likely to continue is that the people who have the power to do anything about it — namely the Federal Reserve, Congress and the Obama administration — are perfectly content with the situation.
"Politicians are, in fact, happy to see the dollar falling because in the short run it seems to help the economy. U.S. exports become more competitive in the world market, while American businesses that generate revenue overseas get an added boost.
"Unfortunately, the long-term consequences are not good at all ... imported goods will cost us more, and overall inflation is bound to skyrocket. The good news about this is that you can protect yourself from the falling dollar in ways that weren't possible a few years ago.
"Exchange traded funds offer some great alternatives. So I'll give you a rundown on three ETF categories you might want to consider.
"If you're looking for a direct play on the falling dollar, it's hard to do better than PowerShares DB US Dollar Index Bearish Fund (NYSE: UDN).
"UDN gives you the equivalent of a short position in the index I charted for you above — a combination of the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona and the Swiss Franc.
"Of course, you might do even better by concentrating on only one or two very strong currencies, or by looking at some of the emerging market currencies. You can do those things with ETFs too.
"Right now a couple of my favorite currency ETFs are CurrencyShares Australian Dollar (NYSE: FXA) and WisdomTree Dreyfus Brazilian Real (NYSE: BZF)."
