Weak US Dollar opens new opportunities
(12/3/2005)
Weak US Dollar opens new opportunities (12/3/2005)
Over the past few weeks, the US Dollar has hit record lows against most major currencies. This has opened up an excellent opportunity for Sterling, Euro and other investors.
As of last week, for one unit of each of the following currencies, you could buy:
| Currency |
Dollars Purchased |
Long-term Average |
Difference |
| Euro |
US$ 1.32 |
US$ 1.01 |
30% |
| Canadian $ |
US$ 0.80 |
US$ 0.68 |
17% |
| Sterling |
US$ 1.92 |
US$ 1.55 |
24% |
| Australian $ |
US$ 0.78 |
US$ 0.63 |
23% |
| Swiss Franc |
US$ 0.86 |
US$ 0.68 |
26% |
As you can see, at present you can currently buy 25% more US Dollars in most currencies than you would have at the long term average. Given that history dictates that the US Dollar will return towards this in the medium to long term, an invest switching to the US Dollar now is likely to make in the region of 25% when they return to their original currency on top of any growth their investment has made.
For Example
Mr Smith has historically invested in Euros. He currently has capital of Euro 100,000 spare and he decides that he invest in a US Dollar denominated, capital protected fund with a 5 year term.
His investment buys Mr Smith US$ 132,000 of shares in the fund.
The investment performs as expected and produces net returns of 7.5% per annum so that on maturity the plan is worth Euro 189,500.
During this 5 year period, the US Dollar has strengthened and the exchange rate between USD Dollar and the Euro has returned to the long-term average of 1.01. Mr Smith decides to switch his capital back to Euros.
Upon transfer, Mr Smith now holds Euro 187,600 – an 87.6% increase on the low risk, steady growth investment he made just 5 years earlier.
Naturally, in real life there are no guarantees that an investment will return steady, positive growth or that the US Dollar will be stronger when you wish to repatriate the capital but for those who are in a position to take this risk the opportunity certainly exists.
Candour advises on a wide range of US Dollar denominated capital protected, bond, equity, hedge and property funds with a variety of terms.
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