A Good Foreign Currency Strategy

You can only gain from a good foreign currency strategy. Here are some thoughts.

Debasing the currency assists governments in paying down debt, boosts exports, penalises imports and reduces trade deficits. These strategies are sometimes not expressed verbally and may be a trap for currency speculators. Politicians often say they are in favour of say a strong dollar while the printing presses are running 24 seven. As Jim Rogers says: “If you listen to Governments you are going to go bankrupt very quickly.” Ask any Cypriot or Greek investor.

Here are some currencies for consideration:

THE US DOLLAR

The US dollar is usually characterised by its safe haven status.

As fear and uncertainty increases the US dollar tends to strengthen. Now as economic conditions have started to improve the US dollar has declined. It is still the benchmark currency and the most tradable and as such has a place in almost every portfolio.

The dramatic fall in commodity prices this week will underpin the US dollar while very low interest rates are a negative.

As the Federal Reserve eventually reduces its stimulus further and interest rates are raised again the US dollar will start to be a more exciting proposition.

This week, however, the dollar settled at a 13 month low against major currencies as US political uncertainties dashed hopes for a quick success of President Trump’s stimulus and tax reform plan.

President Trump is plagued by investigations into alleged Russian involvement in the US election.

For the Dollar to recover this lost ground we will need to have some positive progress on the President’s election promises.

THE EURO

Contrasting the dollar weakness the Euro advanced to a 23 month high. The Euro has been strong since hawkish talk from European Central Bank President Mario Draghi.

THE POUND

Sadly the news from the UK is all bad and the pound is not a favoured investor destination.

AUSTRALIAN DOLLAR

CNBC noted that the Australian dollar traded at $0,7925 after dropping from a 26 month high of $0,7992.

The AUSSI had advanced on the dollars broad weakness before its rally was tempered by dovish comments from Reserve Bank of Australia (RBA) deputy governor Guy Debelle on Friday.

THE NEW ZEALAND DOLLAR

The dollar, known on the currency markets as the Kiwi, has been a great performer and is one of my favourite investments.

The New Zealand dollar reached a high of $0,7460 – its highest since September 2016.

An exchange rate can basically be considered as the share price of the relevant country. So in deciding on what currency to invest in one can rely on first principles. Are fundamental economic conditions for the country improving? Does the country have strong economic prospects, with benign inflation and high interest rates? Is there no sovereign risk? Is the currency in a bull trend as opposed to the currencies of its major trading partners?

Happy Hunting!

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