When a country that's known for its appetite for hard currency gives you the cold shoulder, you know the world is changing.
That's the message the Russian government is sending to the U.S. dollar. After progressively dialing up the rhetoric in the past couple of years, Russia is finally starting to take action to protect itself from the world's reserve currency. In particular, two separate things Russia has done this month will force the U.S. to take a critical look at its foreign exchange policy in light of what many have suggested could turn into a full-blown currency war. More importantly for you, it may also point the way toward lucrative investing opportunities you can take advantage of.
The Siberian two-step
The first announcement the Russians made was that it had agreed with China to open up trade of each country's currency on the other's foreign exchange markets. The move was intended not just to strengthen economic ties between the two countries but also as an attempt to unseat the status of the U.S. dollar as the world's primary reserve currency.
The more interesting move came later in the week, when Russia said it had added the Canadian dollar to its basket of foreign exchange reserves. In addition, a Russian central bank official reportedly said the Australian dollar would likely be the next addition to the currency basket.
There's nothing remarkable about the Russians' stance toward the U.S. dollar. Plenty of people have been worried about the dollar's long, steady decline for a long time, and especially in light of 2008's financial crisis and the spending spree that the U.S. government has embarked upon. What is remarkable, though, is that Russia has identified particular economies that could benefit from dollar destabilization.
Hard assets aplenty
The key to understanding the Russian move lies in the economic underpinnings of the currencies it added to its forex basket. Canada and Australia have seen both their currencies and their stock markets gain strength, due in large part to their vast natural resources. Australia's mining resources include iron ore, alumina, coal, and gold, while Canada has vast energy reserves, as well as gold, platinum group metals, and diamonds, among many other minerals.
With commodity investing gaining popularity in light of higher prices, both Canada and Australia have benefited. Canada has regularly run budget surpluses for more than a decade now. And both currencies recently popped above the value of the U.S. dollar, albeit temporarily.
Should you follow?
If you think the Russians' move is a smart one, you have a number of choices. To create your own basket of currency reserves, the CurrencyShares Canadian Dollar Trust
You can also invest in stocks and bonds from the respective countries. The closed-end fund Aberdeen Asia-Pacific Income Fund
On the stock side, the iShares MSCI Australia
Diversify your finances
If nothing else, Russia's decision to add diversity to its foreign exchange holdings makes sense from a financial management perspective. Your portfolio could benefit from the same idea. Given their wealth of valuable resources, both Canada and Australia are great places to look for investing ideas right now.
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