It's not just the Fed. All over the world, central banks are
taking action to weaken their currencies as a means of
stimulating their domestic economies and protecting exporters.
Rampant monetary easing and cutting of interest rates has
prompted talk of global currency wars, a scenario under which
there will easily defined winners and losers.
That is the rub with currency market. It is the ultimate
zero-sum game. In a currency pair such as EUR/USD, things are as
simple as the euro being strong and the dollar being weak or
vice-versa. There is no middle ground.
Do not expect countries that are currently on the losing end
of the brewing currency war to take that position lightly.
Previous currency battles have prompted protectionism and capital
controls as well as increased tariffs,
With those ominous warnings in mind, investors need to be
aware of how the looming currencies war may impact some of the
iShares MSCI New Zealand Investable Market Index Fund (NYSE:
) Including today's gain of about one percent, which has taken
the ETF to a new 52-week high, the iShares MSCI New Zealand
Investable Market Index Fund has 5.7 percent to start 2013.
ENZL's sturdy performance to start the new year indicates one
important factor: Investors are glossing the negative impact the
strong kiwi is having on New Zealand's economy.
Simply put, the
the strong New Zealand dollar
is being blamed for large job losses in the country's
manufacturing sector. Executives from New Zealand industrial
companies are imploring policymakers there to do something to
stem the tide of the rising kiwi, but the Reserve Bank has shown
reluctance regarding direct intervention in the currency
ENZL continuing rise along with the kiwi seems to be a flawed
concept because the ETF devotes over 38 percent of its weight to
materials and industrial names, the very companies that would be
most adversely impacted by New Zealand's strong currency. If the
central bank does take direct action to weaken the kiwi, then
ENZL would have a legitimate fundamental catalyst to keep moving
WisdomTree Australia Dividend Fund (NYSE:
) Not too far away from New Zealand, Australia's export-laden
economy is attempting to cope with a strong dollar of its own. As
a major exporter of coal, iron ore and other commodities,
particularly to China, a strong Aussie dollar is not the scenario
Australian equity bulls want to contend with.
While the CurrencyShares Australian Dollar Trust (NYSE:
) has been mostly lethargic this year, the longer term trend for
the Aussie dollar, particularly against its U.S. rival, has been
higher due in large part to Australia being home to higher
interest rates. The Reserve Bank of Australia has cut rates by
175 basis points to three percent since late 2011, but even Prime
Minister Julia Gillard has warned
the strong dollar could persist
That could put AUSE in play as a preferred way of accessing
Australian equities. The rival iShares MSCI Australia Index Fund
) allocates about a third of its weight to export industries such
as materials, energy and industrials. On the other hand, AUSE
offers a bit more of a domestic focus as financials,
discretionary and staples names combine for 53 percent of that
fund's weight. Plus AUSE has a 30-day SEC yield of 4.46
WisdomTree Japan Hedged Equity Fund (NYSE:
) It is almost impossible to exclude DXJ, one of this year's
most impressive gatherers of ETF assets
, from this list.
As has been noted time again during its recent surge, DXJ
offers not one, but two advantages. First, the ETF screens its
constituents to include companies that derive the bulk of their
revenue outside of Japan. Second, the fund exposure to
fluctuations between the value of the U.S. dollar and the
Japanese yen. Those points mean DXJ flourishes in a weak yen
environment without necessarily needing Japan's domestic economy
to immediately improve.
Over the past three months, DXJ has also proven to be a better
bet than shorting the CurrencyShares Japanese Yen Trust (NYSE:
). FXY is down 13.8 percent in that time, but DXJ has jumped 24.8
For more on ETFs,
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