The dollar's precipitous fall continued on Tuesday after a mid-August rally, in which it tried to rally past the 94 level, failed to take hold. We're seeing real weakness in the greenback as every mini-bounce since May has failed to materialize.
After a consolidation period in April and May, it's been all downhill for the dollar. As the government continues pumping more and more stimulus into the economy and the Fed keeps interest rates near zero indefinitely, the oversupply of dollars could finally be catching up to the dollar's value.
The latest failed pop could also be the result of the market's pivot to risk-seeking behavior. We know large-caps stocks, especially the FAAMG stocks, have been driving higher with nary a hint of even a minor pullback, but other asset classes are starting to join in the party.
Small-caps have begun leading large-caps and cyclicals, such as financials, industrials and materials, have even taken a turn in the lead in recent days.
The final straw may have been the spike in Treasury yields. The 10-year yield jumped around 20 basis points in just a matter of a few days (although it did move back down somewhat on Monday). If Treasuries begin capitulating to the stock market rally here, there's little reason to believe that the dollar can't fall all the way to 90.
Gold recently pulled back roughly $150/ounce in what could be viewed as a broader move away from defensive safe havens, but I view that drop as more of a consolidation of its recent rally. Gold is already back above $2000, so the precious metals is still fully intact.
How To Play A Dollar Decline
The clear assets to buy in a weakening dollar scenario are equities and gold. Emerging markets assets, both stocks and bonds, could particularly benefit. I'm thinking both the iShares Core MSCI Emerging Markets ETF (IEMG) and the iShares JPMorgan USD Emerging Markets Bond ETF (EMB) are good options.
Gold, both physical and miners, are well-positioned to continue their current rally. The SPDR Gold Trust (GLD), the iShares Gold Trust (IAU) and the SPDR Gold MiniShares Trust (GLDM) are all good choices for physical gold. The VanEck Vectors Gold Miners ETF (GDX) and the VanEck Vectors Junior Gold Miners ETF (GDXJ) are your best choices for miners.
If you want direct exposure to the dollar, there's the Invesco DB USD Bullish ETF (UUP) and the Invesco DB USD Bearish ETF (UDN).