rd80 (99.12)

A Three Dollar Tale (and some other currencies)

February 01, 2011 – Comments (1)

Interesting day in the markets today.  If you follow the markets enough to read CAPS blogs, you certainly know the broad US market, as measured by the S&P 500 index, had a rip-roaring day.  Up 1.67% to be precise.

What you may have missed are the moves in a couple of currencies versus the US dollar.

Aussie dollar:  up  1.6% against the US$
Canadian dollar:  up 1% against the US$
Swedish krona:  up 1.2% against the US$
Norwegian kroner:  up 1.3% against the US$
the euro, Japanese yen and Swiss franc, each up just under 1% against the US$.

I'm pretty sure it's very unusual to see one-day currency swings this big, especially across established currencies.  Also worth noting that most of the cross-currency trades, e.g. Canadian dollar vs. euro, didn't move much. 

Not sure what hammered the dollar across the board today, maybe Egypt looked a little more stable?  But that wouldn't explain the Aussie being up so much more than most of the other currencies.  The Reserve Bank of Australia did issue a statment indicating no change in rate policy recently, but that was widely expected so shouldn't have moved the market.

Bottom line - it was a great day in the US stock market, but only if you owned stocks in US dollar terms.  An Australian investor holding US stocks basically broke even today; Canadian and European investors holding US stocks did a little better than their friends down under, but still didn't have the big day US dollar denominated investors had. 

I thought it was interesting that on one of the best days for the US stock market in quite some time, an account holding US stocks denominated in the Aussie $ would have struggled to break even. Not sure what to make of the one-day move and have no clue if it's a blip or a longer term trend emerging.

Anyone with thoughts on why there was such a big move today or what it means for our portfolios is certainly welcome to chime in.

Disclosure:  Long the Aussie $ via the FXA etf.

Fool on!

Russ