The US Dollar Index generally kept an uptrend since May (as shown in the chart below), although it had some zig-zags. Last friday, the US dollar had a sharp drop due to disappointed GDP release. There are sevaral reasons to belive that the US dollar will pick up the momentum, so the drop last week provides opportunities to buy. At the same time, oil price kept going down, it may boost the uptrend of USD/CAD. From a Canadian trader’s perspective, if you want to long the us dollar, there are at least 4 ETFs available to choose.
1, Comparisons of 4 ETFs
The four ETFs can be classified into two groups: (1) US dollar against a basket of currencies, two ETFs are UUP and USDU; (2) US dollar against Canadian dollar, two ETFs are FXC and DLR/DLR.U. Here are some comparisons about these 4 ETFs.
|USD against a basket of currencies||USD against CAD|
|Fund Name||PowerShares DB US Dollar Index Bullish Fund||WisdomTree Bloomberg U.S. Dollar Bullish Fund||Guggenheim CurrencyShares® Canadian Dollar Trust||HORIZONS
US DOLLAR CURRENCY ETF
|Exchange||NYSE Arca||NYSE Arca||NYSE Arca||TSX|
|Inception Date||02/20/2007||12/18/2013||6/21/2006||APRIL 06, 2011|
|Net Assets||829.9M USD||246M USD||207.8M USD||69.9M CAD|
|Benchmark||Deutsche Bank Long US Dollar Index (USDX®) Futures Index – Excess Return™||Bloomberg Dollar Total Return Index||CAD.USD||USD.CAD|
|30 Day ADVolume||1,204,479||57,039|
|Holdings||DX futures||US Treasury Bills and Short Currency contracts||100% Canadian Dollar||US Treasury Bills and Cash|
2, Comparisons of the benchmarks of UUP and USDU
2.1 UUP tracks the US Dollar Index (USDX). The introduction of this index see here. It is created in 1973 to reflect US’ trading relationship and only adjusted once when the Euro was introduced.The index is consisted by 6 developed markets currencies. Euro accounts 57.6% weighting, so the index is highly correlated with Euro. The futures based on this index is trading at ICE futures US.
2.2 USDU tracks the Bloomberg Dollar Total Return Index (BBDXY). This index could be regarded as an optimization of the US Dollar Index. It is based on most current global goods trade and currency trade. Compare to USDX, BBDXY deleted Swedish Krona and Swiss Franc, added 5 new currencies: Mexico Peso, Australia Dollar, Brazil Real, South Korea Won, and China Yuan. It is broader, more representative, and less concentrated.
2.3 One major difference of the two indices is: the components and weightings of USDX is static, while those of BBDXY is rebalanced annually according to the global trade and currency trade.
|Currency||U.S. Dollar Index (USDX)||Bloomberg Dollar Total Return Index (BBDXY)|
|South Korea Won||KRW||3.4%|
3, Individual fund analysis
3.1 UUP – PowerShares DB US Dollar Index Bullish Fund. This fund’s underlying index is USDX, which is highly correlated with Euro. This fund is very liquid.
3.2 USDU – WisdomTree Bloomberg U.S. Dollar Bullish Fund. The fund holds short term US treasury bills and sell 10 foreign currencies future contracts. USDU’s performance is generally close to UUP but differs from time to time slightly.
3.3. FXC – Guggenheim CurrencyShares® Canadian Dollar Trust. This fund is for investors who take a bearish outlook of USD against CAD. It is just opposite to DLR. If an investor believe USD will appreciate against CAD, he or she should short FXC.
3.4 DLR – Horizons US Dollar Currency ETF. This ETF is for Canadian investors who has a bullish outlook of USD against CAD. It is also a widely used currency conversion tool in Canada. The fund has both CAD and USD version, so it is very convenient for investors.
4, Considerations of trading these ETFs
4.1 Trading against a basket of currencies or an individual currency. Generally speaking, trading against a basket of currencies is less volatile than against individual currency.
4.2 Watch the related central bank policies. UUP is highly correlated to ECB. USDU has higher weighting on JPY.
4.3 Trading directions. UUP is bullish on USD, it also has an inverse version UDN. FXC is bearish on USD, DLR is bullish on USD.