The Best Currencies to Invest in for 2013

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Currency markets in the first half of 2013 have been roiled by central bankers' delusional efforts to prop up their lackluster economies.

That means the best currencies to invest in for 2013 - or, the remainder of the year - will be in Asia and Canada - countries where the governments have refused to engage in debasing their currencies in a "race to the bottom."

Fact is, the strength of any currency is strongly related to decisions made by governments and central banks.

So knowing the best currencies to invest in this year can help protect against our government's spendthrift policies.

This Year's Best & Worst Currencies

Very few currencies have made investors money against the greenback so far in 2013.

When the Fed recently hinted that it might start "tapering" back its $85 billion monthly quantitative easing policy later this year, the U.S. Dollar index spiked 3.1%. 

That prompted steep losses across emerging market equities and bonds, leading in turn to a fall in regional currencies.

Also, interest rates remain depressed as most governments in developed economies are running their monetary printing presses at full speed.

The Argentine peso was the big winner in the first half with a total return of +9.15% against the dollar, according to CME Group.

Other winners included the Chinese renminbi (yuan), which returned +3.74%, the Icelandic krona +6.13% and the Mexican peso +1.17%.   

Not surprisingly, the currency taking the biggest tumble was the Japanese yen, which plunged -12.44% against the dollar.

Other currency laggards include the South African rand, down by -13.16%, the Columbian peso -6.49%, and the British pound -6.19%.

Here's how to invest in currencies for the remainder of the year.

Canadian Dollar: Despite a drop of -5.13% in the first half, the Loonie is a commodity-driven currency benefiting from the continued jobs expansion in the US.

Even though the central bank cut lending rates in a bid to support growth, inflation remains in check and the domestic oil sector remains vibrant.

Further rate reductions are unlikely, which should continue to bolster the currency.

Here's one way to play this "best currency":

 Currency Shares Canadian Dollar Trust ETF (NYSEArca: FXC) which tracks the interbank and futures contracts of the Canadian dollar.

Australian Dollar: The Australian dollar tumbled by -11.64% in the second quarter after 18 months of increasing liquidity in an effort to prime the economic pumps. 

The currency slumped badly recently when Royal Bank of Australia's Governor Glenn Stevens hinted the Aussie is still overvalued and there is room for further easing.

What's more, the pace of investment in the mining sector is expected to peak this year or next, which doesn't bode well for further strength.

Japanese Yen: The Bank of Japan has cobbled together trillions of dollars worth of stimulus measures to boost the flailing Japanese economy.

But the nation's trade deficit is mounting, which will eventually push the up the cost of borrowing. Japan also has a staggering debt-to-GDP ratio of over 200%.

In other words, Japan's problems are structural and no easy fixes are likely to boost the yen.

Euro: Austerity measures related to the sovereign debt crisis, and capital constraints on banks continue to shackle EU economies.

A wearying recession continues, and Europe faces rising unemployment with little possibility of returning to economic growth any time soon

Philippine Peso: This populous Asian market stands out among other emerging market currencies.

The Philippine economy expanded by 7.8% in the first quarter and runs a trade surplus, in contrast to India and Indonesia.  The Peso is the least susceptible to the impacts of tapering and is not dependent on commodity exports to China, according to BNP Paribas SA (ADR OTC: BNPQY)

The currency ranked third globally over the last six years, appreciating 25% in real terms from March 2007 to March 2013, according to Standard & Poors.  Look for continued gains.

Chinese Yuan: The Chinese renminbi led all major currencies in the first half with a return of 3.74%. 

That's on top of a 29% gain over the last six years - the most on the planet.
And despite some recent economic weakness, you can expect more of the same, according to Money Morning Chief Investment Strategist Keith Fitz-Gerald. 

"Demand for the Yuan is growing at such a staggering rate that your financial future will be built upon it."

Fitz-Gerald notes that China has quietly built currency swap agreements with over 20 partners like Australia, Russia, Brazil and India.

In fact, the yuan is set to be freely traded by 2015, with Switzerland, Germany and the U.K. now battling over where the central currency exchange will be located.

In other words, the yuan is the one major currency that's almost guaranteed to be on the upswing for the foreseeable future and now is the time to invest, Fitz-Gerald says.

Fitz-Gerald recommends buying an ETF like the Wisdom Tree Dreyfus Chinese Yuan ETF (NYSEArca: CYB), or open a EverBank Chinese Renminbi World Currency Access Deposit account.

It's not too late to get on board, according to Fitz-Gerald. But don't wait... the clock is ticking.

What didn't make the list of best currencies to invest in for 2013? The U.S. dollar. Here's the full story: Why the U.S. Dollar is Rising - And Why It's Still Doomed

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