Traditionally assets like commodities (e.g., gold, silver) and certain multinational companies, may perform well when the dollar is weakening. Investing in these assets can provide a hedge against currency depreciation. But there is more to it. We just hit the four month low on the US dollar and we need to take action. Let’s see how we can profit from the consequences:

Exports become cheaper

A weaker dollar can make U.S. goods and services more affordable for foreign buyers. This tends to boost U.S. exports, as foreign customers find American products relatively cheaper. In other words, US companies should shift the marketing emphasis from domestic to foreign consumers. (On bigger purchases, such as summer houses, the difference can be substantial.) On the flip side, imports become more expensive so for instance retailers should look for domestic suppliers.

Dollars become less interesting

A weaker dollar may influence capital flows as investors seek higher returns in other currencies or regions. The Swiss franc just hit the highest level against the Euro since 2015. But a simple FX is probably not the best strategy, but why not diversify a bit?

Multinational companies become more profitable

Multinational companies may benefit from a weaker dollar because their foreign earnings can be more valuable when converted back into U.S. dollars. This can positively impact their financial performance and stock prices. (FX hedging is too expensive for multinational companies to protect themselves 100%.) So what company comes to mind? Well, a company such as Coca-Cola gets the majority of its revenue from outside the United States…

Dollars become an investment opportunity

If the downturn is temporary, or dare we say transitory, we can buy exposure to the dollar by for instance investing in a currency ETFs (Exchange Traded Fund) that track the value of the U.S. dollar relative to other currencies. One such example is the Invesco DB US Dollar Index Bullish Fund (UUP), which aims to reflect the performance of the U.S. Dollar Index. We could also get into currency futures contracts that allow us to speculate on the future value of the U.S. dollar. (These contracts are traded on futures exchanges and involve an agreement to buy or sell a specified amount of currency at a predetermined future date).

#deaddollar #USD #UUP #vanillaequity

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