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November 01, 2010 – Comments (5) | RELATED TICKERS: FXA

I dipped my toe into the currency trade today with a small position in CurrencyShares Australian Dollar Trust (FXA), an ETF that tracks the Australian Dollar.

I had looked into different ways to trade currencies about a year ago and concluded that currency ETFs were the most expensive way to do this, but were the simplest for the small position I wanted to take.  The cheapest way to do it is (I think) a foreign currency account with Forex, Interactive Brokers or another broker that offers fx accounts.  In this case, I wanted a small position to diversify some of the cash in my IRA account - it really wasn't worth the trouble of opening a new account and moving funds whenever I might want to add or subtract from the position, so I went with the ETF.

The driver behind this is my belief that the US dollar is going to continue to drop.  I picked the Aussie dollar because A$ short term rates are high and I don't believe the Reserve Bank of Australia is about to start printing money like the US Fed.

I probably haven't done enough homework yet to justify committing funds, but wanted some diversification to protect against a weaker dollar.  And, this will prod me to actually do some more homework and get smarter.

I haven't entered this as a CAPS pick because I think any currency is unlikely to move enough to outpace the SPY benchmark used in CAPS and I don't have a lot of conviction on where the SPY is headed.

My main reason for posting this is to get feedback from fellow Fools who have opinions and/or expertise on where currencies, particularly the A$, are headed.

Fool on!

Russ

5 Comments – Post Your Own

#1) On November 01, 2010 at 6:37 PM, chaimyl (94.36) wrote:

I was just in Australia last month and the economy is booming over there they have a really low unemployment rate i think about 5 percent also while i was there I spoke to a money manger who is a friend of a friend of mine who manages about 100 million and he said that he expects the Aussie to be best performer from all other currencies the thing is their economy as of now is basically driven by china they mine whatever it is from the ground and ship it straight to china they are so well that they can afford paying truck drivers at the mining sites 120,000 a year however if china was to stop importing which i dont see happening too soon since they do not have natural resources then Australia will be hit really hard

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#2) On November 01, 2010 at 9:17 PM, EnigmaDude (87.69) wrote:

Although I like shorter sentences, I agree with comment #1.  The Aussie economy is definitely reaping the benefits of China's growth, and should continue to do so.

I like your strategy.  Seems like a wise way to diversify right now.

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#3) On November 01, 2010 at 9:32 PM, topsecret10 (< 20) wrote:

 I have liked Austrailia for a long time. One of the reasons that I like I like Legend Int'l Holdings (LGDI) Is In part due to the strong economy there. Of course sitting on a gold mine of Phosphate Rock does't hurt either....   :)    TS

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#4) On November 02, 2010 at 8:58 AM, rd80 (97.08) wrote:

Thanks for the comments, particularly the in-country observations.

The RBA raised rates to 4.75% this morning their time.  The bump has the A$ trading around par with the US$ this morning.

Wish I could claim some brilliant insight that let me see that happening, but the only commentary on my investing skill here is that it's better to be lucky than smart. 

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#5) On November 02, 2010 at 4:03 PM, ikkyu2 (99.17) wrote:

"Ask me the secret of good comedy!"

"What's the secr-"

"Timing!"

Nicely timed, friend.

 

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