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Dollar Declines Mean Go-Go Days for Commodities ETFs

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The inverse relationship between the U.S. dollar and commodities is on full display this year for exchange traded fund (ETF) investors.

For example, the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP ) , which tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, is off nearly 6%.

On the other hand, the PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC ) is higher by almost the exact same amount by which UUP is down. Supporting the commodities outlook, the China, the world's top consumer of metals, grains and energy, is seeing its economy stabilize.

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On the supply side, U.S. crude oil production is faltering, which has helped support crude prices. Moreover, the depreciating U.S. dollar has helped support demand for commodities as an alternative hard asset or a better store of wealth.

The U.S. dollar has previously rallied on expectations for a tighter U.S. monetary policy, which would diminish the amount of dollars sloshing around the economy and prop up the greenback against foreign currencies.

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However, with Fed backtracking on its interest rate outlook, the dollar is losing some of its previous momentum.

"The most important takeaway is that because all of these currencies - both major and emerging - are in rising trends, it is the U.S. dollar that is weak. Only the yen now exhibits true strength on its own. Domestic interest-rate policy will be of keen interest to everyone as it directly influences the flow of capital and hence the demand for dollars," reports Michael Kahn for Barron's.

Related: U.S. Dollar ETF Heading Toward Strong Period

Another name in the diversified commodities ETF group to consider is the iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG ) .

The PowerShares DB Agriculture Fund (NYSEArca: DBA ) has recently perked up after lagging other commodities ETFs to start the year. DBA currently features exposure to eights commodities, including cattle, coffee, corn, soybeans and wheat.

The PowerShares DB US Dollar Index Bearish Fund (NYSEArca: UDN ) , which takes the inverse or short performance of the U.S. dollar against the same basket of six major currencies as UUP, is another obvious beneficiary of the dollar's swoon.

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PowerShares DB Commodity Index Tracking Fund

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article was provided by our partner Tom Lydon of etftrends.com.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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