Australia Currency ETF May be Headed for Trouble
In the world of currencies, particularly in the current environment, the U.S. dollar, British pound, euro and Japanese yen often command most of the attention.
However, investors should be mindful of the Australian dollar and the CurrencyShares Australian Dollar Trust (FXA) , which tracks the Aussie against the U.S. dollar.
Although the Aussie and FXA have recently traded higher, some currency market observers see weak anemic Australian economic data weighing on the country’s currency. FXA could be increasingly vulnerable as the monetary policies of the Fed and the Reserve Bank of Australia continue diverging. RBA recently cut Australia’s benchmark interest rates to a record low.
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“Another slowdown in Australia’s headline & core Consumer Price Index (CPI) may trigger fresh monthly lows in AUD/USD as it puts increased pressure on the Reserve Bank of Australia (RBA) to further support the rebalancing of the real economy,” reports DailyFX.
Australia’s benchmark interest rate of 1.75 percent is a record low for the country, but well above most other developed markets, indicating there is room for further downside.
Related: Aussie Dollar ETF Plunges as Reserve Bank Cuts Rates
Looking ahead, most economists anticipate a second cut before the end of the year, with the June quarter inflation figure, which comes out in August, providing further guidance on the RBA’s path. Investors looking to take advantage of Aussie weakness can consider the double-leveraged ProShares UltraShort Australian Dollar (CROC)
“The RBA may continue to embark on its easing cycle and cut the benchmark interest rate at the next policy meeting on August 2 as Governor Glenn Stevens and Co. warns inflation is ‘still expected to remain quite low for some time given very subdued growth in labour costs and very low cost pressures elsewhere in the world,’” according to DailyFX.
Related: Aussie Dollar ETF Under Pressure
The looser monetary policy could support the economy but weigh on the AUD. Consequently, investors may track the markets through currency-hedged ETFs that try to mitigate the negative effects of a weakening Aussie, including the iShares Currency Hedged MSCI Australia ETF (HAUD) and Deutsche X-trackers MSCI Australia Hedged Equity ETF (DBAU) .
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CurrencyShares Australian Dollar Trust
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
