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.
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
(39.53 ?5.78%), Brazil EWZ
(57.41 ?4.00%) 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
(37.43 ?2.83%) 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.