Commodity, Oil Investors Watching the Dollar

• By the tickerspy.com Staff
• On 12:27 pm EDT, Wednesday October 14, 2009

As benchmark equity indices hit 52-week highs, the U.S. dollar is sinking to fresh yearly lows.

It's hard to fight the tape in the equity and commodity sectors these days, but some sectors should be particularly wary of the dollar. The U.S. currency's decline, today hitting fresh 52-week lows, could reverse on continued signs of domestic economic improvement. Australia shocked the world last week by boosting its interest rates, and while the U.S. expects to keep rates stable in the short term, Federal Reserve chairman Ben Bernanke said monetary policy might be tightened once the economic outlook has "improved sufficiently."

Equities tied to the various commodity sectors are among the most likely to move in relation to a continued slide or a rebound for the dollar. Gold in particular could fall from its current all-time high prices above the $1000 mark if its appeal as a dollar hedge wanes. Such a move would likely weigh on gold mining stocks across the board.

Over the last month, select components of the Gold and Silver Stocks Index have surged by double-digits as the commodity broke to four-figure prices. Goldcorp (NYSE: GG - News), Barrick Gold (NYSE: ABX - News), and Newmont Mining (NYSE: NEM - News), the sector's largest U.S.-listed plays, are laggards for the period despite advancing more than 3.5%. Meanwhile, silver play Silver Wheaton (NYSE: SLW - News) is among the top performing precious metal stocks.

As of this writing, the Gold and Silver Stocks Index is among the 15 most expensive tickerspy Indexes by P/E ration with an average multiple of 44.2x.

Various oil-tied sectors have also enjoyed recent weakness in the dollar. While continued economic improvement bodes well for stocks like Suncor (NYSE: SU - News), Exxon Mobil (NYSE: XOM - News), and Penn West Energy Trust (NYSE: PWE - News), the economy's impact on monetary policy could slow or even reverse the sector's recent run.

Last week Peter Beutel, president of Cameron Hanover in New Canaan, Connecticut, told Bloomberg, "Oil traders seem to have been taking profits on long positions," noting the dollar's recent weakness. While profit-taking hasn't turned oil negative yet, it is approaching a resistance point near its 52-week high.

Perhaps the most obvious play on the dollar is in the currency market. Thanks to the proliferation of exchange traded funds (ETFs) there are now numerous U.S.-listed equity plays on global currencies.

Over the last month, the iPath GBP/USD Exchange Rate ETN (NYSE: GBB - News) and CurrencyShares British Pound Sterling Trust (NYSE: FXB - News) are the only Currency ETFs Index components to underperform the PowerShares DB US Dollar Index Bullish (NYSE: UUP - News) ETF. Meanwhile, positive sentiment surrounding the 2016 Rio de Janeiro Olympic bid has helped drive the WisdomTree Dreyfus Brazil Fund (NYSE: BZF - News) up by 6.5% for the period.

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