Hedge your US Dollar Risk

The US Dollar has recovered over the last 8 months or so, partly due to the weakness in global markets and currencies and partly due to the decline in oil. Now that oil has moved much higher from its January lows, the dollar is starting to show signs of resuming its long-term downtrend.

So why is the US Dollar in a long-term downtrend? Well the trade deficit is one reason. The second being the amount of money being pumped into the US financial system. Then there is inflation and the low interest rates.

Most US investors invest a majority if not all of their investment dollars into US equity markets or US treasuries or even bonds issued by US companies. There are three simple ways to mitigate the risk associated with a weak dollar.

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Invest in Currencies outside of the US
Since the US dollar moves in the opposite direction to oil, one way to hedge against a weak dollar is to buy a commodity based currency. The Canadian Dollar (FXC), the Australian dollar (FXA) and the South African Rand (SZR), are all strong commodity based currencies that will help you diversify your US Dollar risk.

Invest in Foreign Markets
I have often blogged about international stocks, but it is often easier to buy an index that represents a foreign economy. Examples of these are China FXI, Brazil EWZ and Russia RSX.

Invest in Oil
Perhaps the easiest way to hedge your US dollar risk is by investing in oil. Buying an ETF like USO can give you easy access to oil itself, without the noise created by quarter to quarter earnings of oil related stocks. Since January, I have been advocating buying USO. Since then oil has bottomed and almost doubled from that bottom.

So there are three easy ways to hedge your portfolio from the risk carried by the US Dollar. Peter Navarro of TheStreet.com talks about the same topic below:

Jim Rogers, author of A Gift to My Children: A Father’s Lessons for Life and Investing, Hot Commodities: How Anyone Can Invest Profitably in the World’s Best Market, or A Bull in China: Investing Profitably in the World’s Greatest Market and Investment Biker: Around the World with Jim Rogers, also talked against the US Dollar in his recent Bloomberg interviews.

Get a great deal on Jim Rogers’ top selling “A Bull in China” here!

Tags: Australian Dollar, Brazil, Canadian Dollar, China, Commodities, Currency, Dollar, Economy, Energy, EWZ, FXI, Oil, Price of Oil, Rand, Risk, RSX, Russia, South Africa, US Dollar, USO

This entry was posted on Monday, June 1st, 2009 at 4:50 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed.