GO
Loading...

How to Use Currencies As Inflation Hedges

Child holding dollar currency notes
Child holding dollar currency notes

The inflation picture in the U.S. is mixed, but elsewhere in the world prices are rising steadily. Here's how to respond.

One benefit of currency trading is that currencies can offer an excellent way to hedge against inflation. How?

"You want a central bank that's going to be ahead of the curve and hawkish," said Rebecca Patterson, global head of currencies and commodities for J.P. Morgan's private bank.

Inflation is actually good for currencies, as Singapore showed last week when it raised interest rates in response to inflation, she told CNBC's Melissa Lee.

To reap gains from inflationary trends, Patterson recommends buying the Australian dollar against its U.S. counterpart. Why, given the Aussie's recent stratospheric rise? Patterson is impressed by Australia's terms of trade, and she thinks the Aussie dollar could pull back against the U.S. dollar during this short trading week. Patterson recommends buying the Australian dollar against the U.S. dollar when it gets to 1.02 with a stop loss at 0.99 and a target of 1.07.

Brian Kelly of Kanundrum Capital agreed with Patterson's overall approach. "Look for the countries that produce the goods that are going up," he said. But he recommends buying the Australian dollar against the yen.

You can watch the discussion here, and then it's your call.

*Accounts Managed by Kanundrum Capital are long euro futures

Accounts Managed by Kanundrum Capital are long (FXE) and long (FXY) puts

Accounts Managed by Kanundrum Capital are long (GLD) and long (SLV)

Accounts Managed by Kanundrum Capital are long gold futures

Accounts Managed by Kanundrum Capital are long silver futures

Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm.

"Money in Motion Currency Trading" repeats on Saturdays at 7pm.