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Dollar ETFs: Is the Run Over?

Zacks Equity Research
The Dow and the S&P 500 climbed on Monday as energy, financials and defensive stocks rallied.

The benchmark 10-year yield has touched 3.09%, the highest level since May and is inching toward its seven-year high of 3.109%. Rising rates in general lead to a surge in domestic currency but the opposite is happening now as the U.S. dollar has fallen 0.6% against the basket of major currencies on Sep 20, facing a nine-week low (see: all Currency ETFs here).

WisdomTree Bloomberg U.S. Dollar Bullish Fund USDU and Invesco DB US Dollar Index Bullish Fund UUP plunged 0.1% and 0.7%, respectively, on Sep 20.

U.S. stock markets are in good shape as the S&P 500 index has reached a new peak, thanks to the technology, healthcare and financial sectors. The Dow-Jones Industrial Average was also at an all-time high that it had reached in January (read:August Wage Growth Hits 9-Year High: ETFs & Stocks to Surge).

This may have possibly led to a change in risk appetite. The drop in greenback signaled renewed trade hopes supplemented by news that senior U.S. officials headed by Treasury Secretary Steven Mnuchin has sent invitations to their Beijing counterparts to have another round of trade talks. The greenback has so far been acting as a safe haven lately as the trade war has been steaming between America and China.

The slip in the dollar against some of the key currencies was partly caused by strong economic data coming from New Zealand and the UK.  The second-quarter real GDP of New Zealand economy was reported at 2.8%, beating consensus estimates of 2.2%. Sterling gained more than 1% after renewed hopes of a Brexit deal at the summit. U.K. retail sales surpassed estimates.

The emerging market (EM) currencies, which were faltering this year, in are on recovery mode with India leading the way and China denying devaluing its currency in spite of tariff impacts. “Fears of a full-blown EM currency crisis are basically over and we’re also seeing some in the market speculating that the end of the Fed’s interest hike cycle may be coming into sight,” said Commerzbank currencies strategist Ulrich Leuchtmann (read: Are India ETFs No More a Hot Investing Spot?).

The fundamentals are supposed to be strong for most EM currencies and market sentiments could be the cause for the short-term volatility. Emerging economies are doing “quite well” despite a broad fall in currencies and rising U.S. interest rates, per J.P. Morgan. Goldman Sachs Asset Management unit is purchasing government debt from Turkey and Argentina as it foresees profitable bond trades from these markets in 2018.

Fed is possibly coming up with a rate hike next week along with information about its future course of action. So, the following ETFs can expect some movement:

UUP

It tracks the Deutsche Bank Long US Dollar Index Futures Index. The fund has AUM of $546.8 million and an expense ratio of 0.75%. The fund has a daily traded volume of 1.03 million shares. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

USDU

It is an actively managed fund. The fund has AUM of $90.6 million and an expense ratio of 0.5%. The daily traded volume is nearly 32000. Zacks has a Medium risk outlook toward it.

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WISDMTR-BB USDB (USDU): ETF Research Reports
 
PWRSH-DB US$ BU (UUP): ETF Research Reports
 
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