Since the end of 2008, the CurrencyShares Australian Dollar ETF
(NYSEArca:FXA), a long Aussie dollar bet relative to the greenback,
has returned over 65 percent, making the Aussie dollar one of the
world's best-performing currencies.
That's been music to investors' ears.
But with signs of Chinese economic fragility appearing and
China's stock market reflecting the slowdown, isn't it high time
for FXA to get with the program and start correcting downward?
A little background is in order.
Australia's resource-rich economy has benefited hugely from
China's rapid expansion. It's pretty much next door to China, and
it helps that iron ore, lead and coal-three of Australia's most
abundant natural resources-also happen to be those in high demand
This natural trading partnership has helped drive the price of
the Australian dollar higher and buoyed the entire Australian
Prior to the middle of last year, the Aussie dollar and Chinese
stock market moved in virtual lock step with each other, as the
chart below comparing FXA in pink and the iShares FTSE China 25
Index Fund (NYSEArca:FXI) in green clearly demonstrates.
For investors worried about the knock-on effects of a Chinese
slowdown on the Australian dollar, there are different options for
The first, most obvious, choice is shorting FXA.
Another, less risky, option is simply clearing any Australian
exposure out of your portfolio.
Finally, for those looking for a pairs trade, going long FXI and
short FXA could work, should the gap in performance between FXA and
Regardless of what you decide, you've been warned, so don't be
left "spitting the dummy" should the high-flying FXA crash and
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