1. US Dollar
The US Dollar will weaken due to the massive trade deficit and that interest rates are not expected to rise. However because it is the international currency and that many countries hold their foreign reserves in the US dollar, the downward trend might be slow. Some countries such as China has been moving to a diversified holding of foreign currency as they view the US dollar to be weakening in the long term.
The sterling accounts for 12 percent of all foreign reserves held by governments worldwide. Britain has a huge trade deficit and 486.7 Billion pounds in public sector debt. Goldman Sachs is saying that the pound is overvalued at 13%.
The euro might strengthen given that if central banks diversify away from the US dollar, the euro will be well placed to replace it as the next best international currency. Other factors for the strengthening of the euro will be that Inflation in the 13 nations that share the euro currency slowed by more than expected to 1.8 percent in January and better than expected unemployment rate. Business climate is also expected to be better and interest rates are expected to be risen to 4 percent during the second quarter of 2007.”
Due to an extremely low interest rate(0.5%), most of the carry trade has been facilitated by the weak yen. However, the fall in global stock markets in February has worried some investors into reducing their risk. Traders offloading holdings funded by yen borrowings have propelled the yen to a three month high as against the dollar. If the stock market climbs further, the carry trade might continue and the yen will further weaken.
Investing for the yuan will be a good long term appreciation strategy. However the trading band must be given permission to widen. Since the re-peg to the US dollar in June 2005, the Yuan has risen 7%. China is expected to keep appreciation slow as exports form a large pillar of the Chinese economy for now.
6. Iraqi Dinar
Iraq has plenty of oil reserves but an unstable political situation and an unexistent economy makes any form of investment unlikely. Renewed interest in the Dinar has been brought about by scams online promising returns over 1000%. However given that there is no foreign market for the Dinar, it is unlikely that one will be able to profit in the short term.
7. Aussie Dollar
The aussie dollar is sensitive to the fluctuations in raw materials such as copper, aluminum and gold as they account for 14 percent of the country’s economic growth. The Australian dollar also as a high interest rate of 6.25 percent, one of the highest for developed economies. Thus traders borrow the yen to and buy the aussie dollar to profit from appreciation and the interest spread. If you expect raw material prices to go up, the aussie dollar will be a good bet.
8. Singapore Dollar
The Singapore dollar is expected to gradually climb as the central bank moves the trading band up. The economy is doing well and heavy foreign investment is expected to drive the Sing$ up.
9. New Zealand Dollar
New Zealand has the highest interest rate in the industrialized world. Currently, the interest rate is 7.5%. However Governor Dr. Alan Bollard, Reserve Bank of New Zealand, thinks the interest rate is lower than it should be due to the liquidity provided by Asia and China. If interest rates continue to rise, the new Zealand currency will strengthen too.
10. Canadian Dollar
A crunch in the US economy is will be correlated to a slowdown in the Canadian economy. If the US economy enters recession, expect the Canadian value to drop with the US dollar.
When interest rate of a country rise, the currency strengthens, Bond prices and equity prices of the country fall. You should be investing in a country whose currency you think will be stronger than the one you are living in currently.
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