Australian Dollar: Is It Worth
Buying?
The Dynamic Wealth Report
May 19, 2011
by Jay Chernoff, Editor
Most investors
stick with the “big four” asset classes for their investment
portfolios. Ask anyone what they’re investing in and they’ll likely say
stocks, bonds, commodities, real estate, or some combination.
But there’s another option for investors… and the benefits are too
plentiful to ignore.
What I’m talking about is investing in currencies.
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Currency investing (and trading) has taken off in recent years.
The currency market is huge. In fact, roughly $4 trillion worth of
currencies change hands every day. It’s easily the largest financial
market in the world.
What’s more, currencies allow an investor to play the global market. Want to invest in the economy of the United Kingdom? How about New
Zealand? Currencies make global investing as straightforward as
possible.
Why? Under normal circumstances, a currency reflects the economic
condition of a country. Think Switzerland’s GDP number will be better
than expected? Simply go long the Swiss Franc. It doesn’t get any easier
than that.
Or does it?
As a matter of fact, it’s now easier than ever to invest in currencies.
The growing popularity of currency ETFs make buying (or selling) a
currency as simple as trading a stock. Here’s why…
There are ETFs available for every major currency. You can invest in the
Euro, Yen, Swiss Franc, Pound, Peso, etc. There are even ETFs for less
popular currencies such as the Russian Ruble or Swedish Krona. And many
of these ETFs even offer dividends!
Sounds like these ETFs would be a nice addition to any investor’s
portfolio.
But… how do you know what currency to pick?
Is it any easier forecasting the economy of New Zealand than say,
deciphering a company’s financial statements? How do we know if the Yen
is a better investment than the Swiss Franc?
Fortunately, you don’t have to be an expert on global economics to have
reasons to invest in currencies. In fact, there’s even a better reason
to put money in currencies than global diversification.
That reason is correlation.
Here’s the deal…
Some currencies correlate extremely closely with other major asset
classes, such as stocks, gold, and oil. In other words, certain
currencies do an excellent job of tracking some of the world’s most
important investment products.
And right now correlation makes the Australian Dollar an amazing
investment opportunity.
You see, the Aussie Dollar is the most highly correlated currency to
several important investment classes. As a matter of fact, the Dow Jones
Industrial Average, S&P 500, gold, and oil are all being closely tracked
by the Aussie Dollar.
Take a look at these numbers, which I’ll explain in a moment…
- Dow Jones… 0.87
- S&P 500… 0.87
- Gold… 0.77
- Oil… 0.76
These numbers represent the Aussie Dollar’s correlation with the four
major investment products listed. Remember, the closer a correlation is
to 1, the more alike the investments are. So, two investments with a
correlation of 1 would move exactly the same.
Look at the list again. Every category has a correlation of at least
0.76… all the way up to 0.87. Make no mistake… these numbers are
significant.
Here’s why…
The Aussie Dollar can serve as a proxy for all four investments.
Let me put it a different way. To have exposure to gold, oil, the Dow
Jones, and the S&P 500, all you have to do is buy the Aussie Dollar! It
tracks those four so closely, there’s almost no reason to buy them
individually.
Who would’ve guessed it?
Now, correlations do change over time, so it’s something you’ll want to
keep an eye on. But at this point in time, there’s no better currency to
buy in terms of key correlations than the Aussie Dollar.
And, buying the Aussie Dollar is a piece of cake. Simply purchase the
CurrencyShares Australian Dollar Trust (FXA). It even pays a dividend
yield of over 3%.
DDon’t miss out on your chance to trade the Aussie Dollar while it’s
highly correlated with stocks, gold, and oil. There’s no easier way to
track those important asset classes all in one investment.
***Editor's Note***
Today's the day for all you currency traders! We just launched our
highly-anticipated trading newsletter, The Forex Blueprint.
In it, hot-shot trader Karl Stevenson will share his best ideas for
cashing in on the enormous currency market. Click here
to get the details...
One of the most active ETFs this week is iShares Russell 2000 Index Fund
(IWM). It’s up 1.5% today and over 19% for the last 52 weeks. IWM tracks
the performance of 2,000 small cap companies. IWM has pulled back a bit
after reaching record high levels in recent weeks.
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