Today the Loonie achieved parity with the US dollar for the first time in 30 years. Five years ago, 65 cents could buy you 1 Canadian Dollar. Since then the Dollar has devalued 50% against the CAD and nearly 100% against Gold. This has been partly due to a massive increase in the number of Dollars floating around, and partly because of the low interest rates which no longer attract much foreign interest.
The 50 basis point cut in the Federal Funds rate isn’t going to save us from recession. What it definitely did do is weaken the dollar further against all major currencies.
How are you going to Hedge against a weakening dollar?
I been a strong advocate of investing in Gold and Silver for 2 years. Today Gold hit $735 after trading around around the $665 mark for the past year.
I realized that the Feds were going to drop the rate last week and put in an order to buy FXA. FXA is the CurrencyShares Australian Dollar Trust, an ETF that tracks the price of the Australian Dollar. Immediately after the Fed rate cut it jumped 3% and is up 4% for the week. It also pays an annual yield of approximately 5% on a monthly basis.
As the Dollar continues to weaken, I expect FXA to keep on appreciating. The question is how low do you think the Dollar will go?