If you own U.S. dollar-based assets such as stocks and bonds, you really need to think about diversifying your portfolio. The trend for the USD is down and I expect it will continue to drift lower. Just last week, the USD fell to a 25-year low against the commodity-based Canadian dollar, which has been benefiting from the strong surging oil, gold, and mining markets.
The USD also fell to an eight-month low against the yen and a one-year low against the euro. The decline of the USD should not be a surprise to you especially for those of you who have been following the commentaries in Profit Confidential, where we have been bearish on the USD.
The USD is also gaining some strength against the Chinese yuan, while still insignificant, may be a sign China is feeling the pressure from Washington to let the value of the yuan rise. The massive U.S. trade deficit with China remains a sticky point for Washington.
The reality is the White House wants the USD to depreciate in order to make U.S. made products and services cheaper for foreigners and in turn, help to pump up U.S. exports and reduce the surging trade deficit it has.
The Federal Reserve is close to ending the current cycle of higher interest rates and this will help ease some support for the USD.
It is clear that President Bush wants a softer USD despite not coming out and saying it. The trend for the USD is clearly negative and, as an investor, you need to deal with this.
You should try to increase some non-USD denominated stocks. For instance, you can buy some major U.S. stocks that are interested on the Toronto Stock Exchange in Canadian dollars. You can also buy U.S. index instruments such as the S&P 500 based in Canadian dollars.
Alternatively, you can buy major blue chip or large-cap Canadian stocks listed on the Toronto Stock Exchange, the major stock exchange in Canada.
Another strategy is to put options on the USD to hedge against further weakness. This strategy would make sense if you have a significant portfolio.