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Is the Dollar Rally Over? ETFs in Focus

Rohan Pareek
Ingersoll-Rand (IR) grows on the back of stellar sales, greater operational efficacy, pricing actions and strategic acquisitions.

After gaining for a few weeks, the U.S. dollar weakened against a basket of other currencies for the sixth day in a row. Notably, the U.S. Dollar Index was down 1.5% in a week (as of Aug 22) (see all Currency ETFs here).

 

Donald Trump who aimed to boost the U.S. economy was disappointed by the Fed’s decision to raise interest rates this year, which resulted in stock market decline and depreciation of the dollar. The 12-page minutes of the FOMC, released on Aug 22, indicated that the Fed is looking at further rate hikes in the near future.

 

Additionally, the U.S. dollar lost its safe haven appeal recently with signs of stabilization in emerging market currencies like the Turkish lira and Argentina peso. Though trade talks have begun between the United States and China in Washington, aimed at resolving the worsened state of conflicts between the two biggest economies, the prospects of coming to a consensus however are quite bleak (read:  Indonesia Banks on Back-to-Back Rate Hikes: ETFs in Focus).

 

However, the weakening trend in the greenback might reverse, given that the United States and China imposed tariffs of 25% on each other’s goods worth $16 billion. China is likely to file a complaint with the WTO against this recent imposition of tariff. 

 

Trump did not anticipate much from the trade talks taking place between the U.S. Treasury led by Secretary David Malpass and Chinese Commerce Vice Minister Wang Shouwen as he threatened to put duties on almost all annual Chinese imports aggregating to more than $500 billion unless Beijing buys more U.S. goods and makes noteworthy changes to the tariff structures, internal subsidy programs and intellectual property practices. 

 

This will ultimately impact U.S. consumers who would have a relatively lower purchasing power. The IMF indicated last month that the ongoing tit-for-tat tariffs could lead to a 0.5% decline in global growth by 2020 (read: Currency ETFs Winners & Losers on Turkey Crisis).

 

CompTIA, a technology trade group, considers U.S. tariff on tech products as “irresponsible and misguided.” According to Elizabeth Hyman, the group’s executive vice president for public advocacy,” These tariffs will not only severely undercut the U.S.’s global competitiveness and leadership in cutting-edge technologies, but also threatens America’s national security infrastructure.”

 

Below we highlight the related ETFs:

 

Invesco DB US Dollar Index Bullish Fund UUP

 

It tracks the Deutsche Bank Long US Dollar Index Futures Index. The fund has an AUM of $554.9 million and an expense ratio of 0.75%. The fund has a daily traded volume of 1.04 million shares. The fund lost 1.68% the past week. It has a Zacks ETF Rank of #3 with a Medium risk outlook.

 

WisdomTree Bloomberg U.S. Dollar Bullish Fund USDU

 

It is an actively managed fund. The fund has an AUM of $93.3 million and an expense ratio of 0.5%. The daily traded volume is nearly 34000.  The fund performed poorly in the past week, losing 1.41%. Zacks has a Medium risk outlook toward it. 

 

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