In the world of currencies, particularly in the current environment, the U.S. dollar, British pound, euro and Japanese yen often command most of the attention.
However, investors should be mindful of the Australian dollar and the CurrencyShares Australian Dollar Trust (NYSEArca: FXA), which tracks the Aussie against the U.S. dollar.
While the Australian dollar, like other major currencies, is beholden to central bank policy, the good news for the currency and FXA is that some Australian officials do not see the Reserve Bank of Australia (RBA) engaging in another rate cut this year.
“Australian Treasurer Scott Morrison said he doesn’t see much appetite for further cuts to his nation’s already record-low interest rates, while stressing that’s a decision for new central bank Governor Philip Lowe,” reports Bloomberg.
Australia’s benchmark interest rate of 1.75 percent is a record low for the country, but well above most other developed markets, indicating there is room for further downside.
Among developed markets single-country exchange traded funds, the iShares MSCI Australia ETF (NYSEArca: EWA) has been a solid performer this year with a gain of almost 9%. Rebounding commodities prices and an accomodative central bank are boosting Australian equities, EWA and helping the country continue its lengthy streak of not falling into a recession.
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“RBA’s Stevens and Lowe have made the case for utilizing low global rates to borrow cheaply to fund infrastructure and boost productivity in the economy. Morrison said while Australia is still increasing borrowing to cover government spending on obligations such as health, education and welfare, it wasn’t in a position to splurge on capital,” according to Bloomberg.
The SPDR MSCI Australia Quality Mix ETF (NYSEArca: QAUS) emphasizes the quality factor, which captures excess returns to stocks that are characterized by low debt, stable earnings growth and other ‘quality’ metrics. Lastly, the First Trust Australia AlphaDEX Fund (NYSEArca: FAUS) selects Australian companies based on growth factors including 3-, 6- and 12-month price appreciation, sales to price and one year sales growth, along with value factors including book value to price, cash flow to price and return on assets.
CurrencyShares Australian Dollar Trust
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
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