Use of Currency ETFs as Proxies for Commodities

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Australia and Canada share a host of commonalities, from their vast size to the fact that they are both members of the Commonwealth. However, there are also some differences between these two countries.

Canada has a thriving wildlife population, with its iconic moose, while Australia‘s equally impressive array of creatures includes kangaroos and its famous (and cuddly) wombat.

When it comes to finances, however, there is much more similarity than difference between these two nations. Both countries have thriving economies with established currencies for trading and other financial transactions.

Currency ETFs

In recent years, currency ETFs have been gaining popularity in both countries as a way to track currency movements without the need to hold actual physical currency or engage in complex derivatives trading.

Due to their small population and geographical locations, Australia and Canada are both leading commodity-exporting nations. With a wealth of natural resources, the two countries have become hubs for producing minerals, energy sources, agricultural goods, seafood, and other raw materials.

As such, their respective currencies – the Australian Dollar (A$) and the Canadian Dollar (C$) – often move higher or lower in tandem with commodity prices worldwide.

According to Yahoo Finance, “In 2011, commodity prices peaked during the secular bull market in raw materials; the A$ and C$ peaked against the U.S. dollar.”

FXA and FXC ETFs

The Invesco CurrencyShares Australian Dollar Trust (FXA) is an exchange-traded fund that seeks to track the performance of the Australian Dollar against the U.S. dollar, which is widely regarded as the world’s reserve currency.

Invesco CurrencyShares Canadian Dollar Trust (FXC), similarly, aims to track the performance of the Canadian Dollar against the U.S. dollar.

FXA and FXC ETFs can be used as hedging instruments when managing foreign exchange rate risk associated with international transactions involving multiple currencies.

By doing so, investors can ensure that their returns remain unaffected by any movement in foreign currency rates over time. Thus, they have greater financial security and stability even during volatile economic conditions worldwide.

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