Trend: The financial crisis has created an era of competitive currency devaluations – where every country tries to keep its own currency from rising too much.
Investing in currencies requires insight into the political climate due the the impact of rising currencies on exports and unemployment. Chris Weber at Money Morning reveals the dynamics of the currency wars.
Link: Global Currency Wars Reveal the World's Best Money Play
Since about 2001, whenever any currency rises too much, the local manufacturers or farmers - or anyone who lives by exporting - start to scream about it. Their local governments respond by doing all they can to lower the value of that currency, having it fall in value and thus making exports cheaper - all this in the hope that the domestic economy will become better.
Pick any period so far in this young century and you’ll see that this is true. For instance, right now you see it in those countries whose currencies have soared the most in the last few months.
Let’s focus on the recent highest-flying currencies. The New Zealand dollar soared 23.6% against the U.S. dollar from mid-March through mid-June. That’s the best three-month performance for the Kiwi dollar since way back in 1971, when currencies began floating against each other.
And over 2009, as a whole so far, the strongest currency has been the South African rand, which has soared 18.3% against the dollar since Jan.1, the best performer of all the 16 major currencies. Other currencies that have been strong have been the Norwegian krone and the Canadian dollar (both up 13% since 2009 began) and the Australian dollar (up 14.6%).
It should be no surprise that all these countries have been making noises and taking action to try to reverse that trend.
The bottom line: Currency Strength Leads to Devaluation. Monitor your currency investments regularly.
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