How to Play a Weaker U.S. Dollar
This post is part of a regular series written by ETF Trends editor Tom Lydon, special for CNBC.com.
Having a weak dollar isn’t necessarily a bad thing for the U.S. Although it might negatively impact the performance of certain exchange traded funds (ETFs), there are many items that could go in the positive column for this situation as well:
- American goods are cheaper for others, so they’ll buy more
- U.S. tourism will reap the rewards — with a weak dollar, foreigners will find it appealing to come over here and go on some shopping sprees; this also could help make up for the ongoing weakness in U.S. consumer spending
- If you’re holding ETFs for commodities prices in U.S. dollars (think crude oil), you could find yourself on the winning side of the equation
- Since currencies are always about relationships, a weak dollar means that there are currencies out there that are strengthening
One of the most straightforward ways to play a weaker dollar is the PowerShares DB U.S. Dollar Bearish, which is based on the U.S. dollar index and is designed to rise as the dollar falls. But a weakening dollar opens the door for hedging with a number of other funds that track the performance of foreign currencies, including:
CurrencyShares Swedish Krona: CurrencyShares funds hold the actual currency and are structures as grantor trusts
WisdomTree Dreyfus Brazilian Real: WisdomTree’s funds invest in either non-U.S. money market securities, or in a combination of money market instruments, designed to provide exposure to non-U.S. money market securities or rates (they are not money market funds, however)
Market Vectors Renminbi/USD ETN: These ETNs are debt securities that give exposure to the exchange rate between the U.S. dollar and foreign currencies
iPath GBP/USD Exchange Rate ETN: These ETNs measure the relative values of two currencies.
Disclosures:
Tom Lydon is a board member of Rydex Funds.
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Tom Lydon is the editor of and author of iMoney: Profitable ETF Strategies for Every Investor.