The Australian dollar's slide against the greenback last week
pulled returns for U.S. investors into the red compared with flat
returns for local Aussie investors, as a number of so-called
commodity currencies took a technical breather and weakened against
the U.S. dollar for the first time in a while.
U.S. investors in the $2.70 billion iShares MSCI Australia Index
Fund (NYSEArca:EWA) lost 1.77 percent last week, while the locally
denominated MSCI Australia Index was about steady for the week
ended March 23, meaning all the red ink was about the currency
cross, as IndexUniverse's weekly Currency Impact
No commodity-related headlines were behind the shifts-they were
more of a technical consolidation in an overall bearish trend for
the U.S. dollar. Still, U.S. investors in ETFs such as the
WisdomTree Dreyfus Commodity Currency Fund (NYSEArca:CCX) lost over
1 percent last week, again providing a clear example of just how
much currencies affect returns in globalized investment
Despite last week's mediocre performances by the Aussie dollar
and other commodity currencies from countries such as Norway,
Russia and New Zealand, it's hardly time for a change of heart
among investors who have been bullish on countries with economies
that rely on raw-material exports.
Indeed, the Aussie dollar has benefited greatly from the carry
trade-wherein investors borrow in low-yielding yen and buy up
assets in higher-yielding Aussie dollars in an effort to profit
from the difference in yield.
However, the carry trade was on hiatus last week, as the yen
appreciated by 2.5 percent against the Aussie dollar.
The weaker Aussie dollar means that when U.S. investors in
Australian equities convert their gains in
Aussie-dollar-denominated equities back into U.S. dollars, returns
Other Currency News
The euro's gains last week were like wind at the back of U.S
investors in Europe, as the debt-plagued currency appreciated
Unfortunately, Spain is now occupying the spotlight once
reserved for Greece, as Italian Prime Minister Mario Monti warned
that Spain could "reignite the European debt crisis."
The comment comes as European officials prepare a "debt crisis
firewall"- which Germany currently insists should be capped at 500
Investors in the iShares MSCI Spain Index Fund (NYSEArca:EWP)
are currently gaining from recent boosts in the euro, but might do
well to watch their exposure in the Iberian country in coming
Complete coverage of the impact of foreign currency movements on
U.S. investor returns is available in the IndexUniverse Currency
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