Years of a strong dollar are expected to wind down, due to low interest rates that the Federal Reserve indicates will stay low for years to come. On top of that: soaring budget deficits, and increased money supply (due in part to recession-fighting efforts prompted by the coronavirus pandemic), will weigh on the dollar, too.
But a weakening dollar can be good for certain investments. U.S. investors in foreign stock funds benefit because when a foreign stock rises in price or pays a dividend in its local currency, that investment gain gets translated into dollars. Consider the performance of the MSCI EAFE index during the recent dollar decline. Over the nearly three-month period this summer when the dollar was weakening most, the index, which tracks stocks in foreign developed countries, gained 5.8% priced in local currencies. Converted into U.S. dollars, the index gained 10.9%.
And then there are commodities, whose prices tend to move inversely to the dollar. Because many are priced in dollars, a weak greenback typically means higher relative commodity prices. A lower dollar also fuels demand overseas, says Katie Nixon, chief investment officer at Northern Trust Wealth Management. “Foreign buyers purchase U.S. commodities such as corn, soybeans, wheat and oil with dollars. When the value of the dollar drops, they have more buying power.”
We’ve identified five funds that will let you profit from the dollar’s decline. Returns and data are through October 9.
