How to Play a Falling Dollar With ETFs
Over the last few months I have written several columns warning of the potential for currency moves to affect stock portfolios. I've also written about various types of products that allow do-it-yourself investors to access currency markets in their existing brokerage accounts without having to open a separate account to trade currencies.
The decline of the U.S. dollar in the last few days in conjunction, perhaps, with the short-term selling in equities is exactly what I had in mind when I wrote those articles.
The case for a general dollar decline -- not collapse, just a decline -- is compelling for several reasons, including the possibility for the euro to take on some of the role held by the dollar as the world reserve currency, the potential for the world to demand fewer dollars as foreign reserves diversify into broader baskets, and various country deficits. These are all reasons you've likely heard before.
Even if you don't buy into this, the scenario is plausible and may be worth investing around on a long-term basis to reduce portfolio volatility if nothing else.There are quite a few products that provide access to the currency market and more on the way. The most recent products to list, which I wrote about in June, are the Currency Shares from Rydex, which recently surpassed $1 billion in assets for the entire series of seven exchange-traded funds. These ETFs are the CurrencyShares Euro Trust (FXE), CurrencyShares British Pound Sterling Trust (FXB), CurrencyShares Canadian Dollar Trust (FXC), CurrencyShares Australian Dollar Trust (FXA), CurrencyShares Swiss Franc Trust (FXF), CurrencyShares Swedish Krona Trust (FXS) and the CurrencyShares Mexican Peso Trust (FXM).
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