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Best Currency to Own Depends on Stocks’ Next Move

By Sean Hyman   |   Monday, 06 Jun 2011 08:05 AM

When I’m speaking at conferences around the world, people will come up to me and ask me which currency is the best currency to own. And there are several possible answers to that question.

As far as which country has the most sound economy and currency, in my opinion, that’s Norway and its krone. So if I had to pick a currency to buy and hold for the next 10 years, that would be it. It seems everyone has a job there (with an unemployment rate of 3.20 percent). When everyone’s got a job, times are good!

However, as a trader, I don’t typically have that liberty. So from a trader’s perspective, the “best” currency to buy is the one that has the best chance of going up at the moment.

Join the 3.5% of Americans who are truly wealthy and financially secure.

However, what goes up the most at the moment depends largely upon the sentiment in the markets. And there’s no greater gauge of the broad “mood” in the markets than in looking to the U.S. stock market. It has a very broad level of participants not only from the U.S. but also from around the world.

With that said, it’s good to know which direction the stock market is heading so that you can tell which currencies have the best chances of heading higher.

For instance, when stocks are heading higher, currencies like the Aussie dollar (my “offensive” favorite), New Zealand dollar, Canadian dollar, British pound, etc. tend to do well.

However, when everyone thinks the sky is falling and thus stocks are too, then defensive currencies like the Swiss franc (my “defensive” favorite) or the Japanese yen tend to do well.

Now, I’ve said all of that to say this …

The currency that’s going to perform the best going forward is going to depend upon where stocks go from here.

Right now, the Dow and S&P 500 are nearing crucial levels. The Dow Jones Industrial Average needs to hold above 12,000 in order to maintain a strong uptrend.

The S&P 500 really needs to hold above the 1,250ish level in order for it to stay in a strong uptrend.

So if these levels are sustained, then I believe that the Australian dollar (AUD) will be one of the best performing currencies going forward.

You see, the Australian dollar is a very “stock market sensitive” currency. You can look at a chart of the U.S. stock market and a chart of AUD/USD and they tend to head in the same directions (both on the up side and the down side).

In good times, traders love being a buyer of this commodity-currency that earns a high degree of interest (presently 4.75 percent, which is the highest rate among the industrialized nations).

However, if stocks have large pullbacks during the summer months (and that happens during many summers), then my favorite pick during those times would be the Swiss franc.

Switzerland has always been known for being a rock in the midst of a storm. They don’t get terribly involved in wars. They hardly have any political instability. They are a strong financial center of the world.

They presently have an unemployment rate of 3.40 percent (one of the lowest rates in the industrialized world). Pretty much, anyone that wants a job there has one.

When you look to the U.S. and Europe that have jobless rates in the 9-10 percent range, an unemployment rate in the 3’s is a dream.

So Switzerland is a place in the world that is not beaten up black-and-blue like Europe, the U.S. and Japan right now.

Therefore, if stock markets get shaky, this is one of the first places to look to in order to find profits.

So watch and see where stocks head in the near-term and that will tell you whether the Aussie dollar will perform best for you or the Swiss franc.

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.

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