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Foreign currency Exchange Traded Funds had a good month in July, even as the U.S. dollar and stock market rallied. The top performing ETF was the WisdomTree South African Rand. (SZR) It returned 7.65% through July 31. WisdomTree Dreyfus Brazilian Real (BZF) was the second best performer in July, returning 3.3% as the dollar fell 3.3% vs. the real. CurrencyShares Mexican Peso Trust (FXM) returned 3.3% in July and 13.0% year to date. Many currency exchange ETFs have not been in existence long enough to have one year track records. The top performed for those that have is the CurrencyShares Euro Trust (FXE), which has returned 17.98%. A major reason emerging market currencies and the funds that invest in them have had high returns is the high interest rates in those countries. In Mexico, the central bank interbank funding rate is 8%. The South African Reserve Bank recently announced it would increase its key interest rate to 12%, citing inflation concerns. The U.S. Federal Reserve has set its benchmark rate at 2%.
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