The Dollar and Stocks- Don't Confuse 'em

The US dollar’s downtrend appears to have reached a point that it has entered the public’s consciousness, judging from the media’s attention. Such level of interest often seems to come after a protracted trend is in place, rather than in anticipation of a significant move. The dollar’s move has also captured the imagination of many equity traders who now appear to add a currency component to their investment strategies. While a weaker dollar may help boost the value of foreign earnings for US-based companies, turning one’s dollar view into an equity strategy may be more difficult than many pundits would suggest.

Making Cents of the Dollar

There is modest run on the US dollar in underway. Over the past month, the greenback has lost nearly 5.5% against the New Zealand dollar, 4% against the Australian dollar, 3% against the Canadian dollar, more than 2% against sterling and the euro. By contrast, the yen has under-performed, losing more than 1% against the dollar. The dollar appears to be becoming under valued, but the risk is that valuations get stretched even further before snapping back.