How To Invest In Foreign Currencies

As the dollar remains weak, many American investors are looking to invest in foreign currencies. In fact, currency trading all over the world is enjoying increased popularity, even as a stagnant world economy has many countries trying to hold down the value of their currencies in an attempt to keep exports cheap. To successfully invest in foreign currencies, ideally you should put your funds into a currency you think is stronger than the currency of your own country.

Also, you should believe this currency will continue to appreciate against your country’s currency. Investing in foreign currency can be incredibly lucrative, but since currencies are notoriously volatile, the opposite is also often true. Invest in foreign currencies with great caution. That being said, here are some of the top picks for currency investment, against the U.S. dollar.

Australia

The Australian dollar is one of the strongest currencies in the world, and the sixth most traded currency. Why is it so popular? Australia has a plethora of natural resources and is a major exporter to China, and the country also has high interest rates as well as an impressively stable government and economy, which have barely felt the effects of the global recession. However, the Australian dollar is already highly valued, which means any returns may be meager, and contingent on further weakening of the U.S. dollar. But, as far as currency trading goes, Australia is still one of the safest bets out there, especially since the projected growth of the Chinese economy over the next couple of decades should mean good things for the Australian dollar.

Vietnam

This is a far riskier bet. The Vietnam government recently drove the value of the Vietnamese dong down to shockingly low levels, and might attempt to drop the value further in the near future. Since Vietnam’s economy is heavily dependent on exports, keeping the dong low has been one strategy the Vietnamese government has used to bolster foreign purchases of Vietnamese goods during the recession. However, this is an excellent opportunity to buy a lot of currency at a rock bottom price and then simply wait for an improved worldwide economy. Also, the Vietnamese economy is rumored to be improving in general, with real estate values steadily increasing.

Japan

Japan is another wild bet that has a huge potential pay off. Like Vietnam, Japan manages the yen so that it fluctuates with the U.S. dollar, and so it is not typically considered a great currency hedge. This means that the yen is undervalued. However, if Japan would ever decide to let the yen appreciate, it would most likely make up for lost ground against the dollar rather quickly. There is a rumor floating around that Warren Buffet’s best currency bet is on the yen – quite the ringing endorsement. This one, like the dong, will probably not pay off in the near future. The yen is a long term investment that is relatively safe, because it tends to be flat against the dollar.

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