The global foreign exchange market is the biggest and most liquid financial market on the planet. Fortunes are made, fortunes are lost, and there is never a short supply of excitement, especially since currency price quotes can change in seconds. It also helps that the market is open 24 hours a day, Monday to Friday.
Whether you’re a seasoned investor or you’re dipping your toe in the forex market for the first time, you’re likely interested in determining which are the best currencies you should park your money in and which ones you should avoid over the coming year.
As expected, the U.S. dollar makes it to the top of the best currency list, but there are some more surprising and exotic currencies that you should pay attention to.
Here are the seven best currencies to invest in in:
1. U.S. Dollar (USD)
One of the biggest surprises in the foreign exchange market in 2018 was the U.S. dollar’s meteoric ascent.
Despite geopolitical tensions, trade disputes, turmoil at home, and ballooning debt levels, the greenback recorded its best annual performance since 2015 as the U.S. Dollar Index advanced 5% and posted gains against most of its currency rivals.
Investors treated the dollar as a safe-haven asset in times of immense volatility, which contradicts conventional thought because investors typically pour into bullion when there is havoc in global financial markets. As of early 2019, the U.S. dollar is the best currency to invest in.
2. Australian Dollar (AUD)
After peaking in June 2015, the Australian dollar has lost ground against the greenback and the euro. Does that mean the Aussie buck is no longer a viable forex investment? Hardly.
The nation’s economy is doing well, but the most important fact is that the dollar is strongly connected to precious metals and correlated to gold, silver, and steel prices. As more central banks hoard gold and build their reserves at the fastest pace in three years, it is a signal that something is brewing on the world stage, and the major central banks are protecting their assets.
3. Swiss Franc (CHF)
The Swiss franc is the sixth-most traded currency in the world. For years, the franc has been the gold standard of currencies, providing plenty of stability against most major currencies.
In the last five years, for instance, the USD/CHF has fluctuated on average between 0.9600 and 1.0000, which is something you like to see when you’re using the forex market to shield your assets from other currencies as opposed to making a quick profit. The consistency of the Swiss Franc makes this one of the best currencies to invest in.
4. New Zealand Dollar (NZD)
Like the Australian dollar, the New Zealand Dollar peaked in 2015 and posted steep losses against the U.S. dollar, cratering from 0.9000 to 0.6787. While it has traded relatively sideways against several other currencies over the last 18 months, a large chunk of its economy relies on China.
As the U.S.-Sino trade war lingers, the New Zealand economy’s short-term future rests on every word coming out of trade negotiations and every piece of data – the currency softened following a weak Chinese producer price index (PPI) in December.
On the other hand, New Zealand has maintained a vibrant economy with respect to the public purse. It could be the anchor that every investor wants in this chaotic market.
5. Chinese Yuan (CNY)
China is enduring one of its worst economic periods since becoming a global powerhouse more than two decades ago, stemming mostly from the ongoing trade war with the United States. As a result, the Chinese yuan plunged to multi-year lows against a myriad of currencies, reversing the latest appreciation trends.
Whether the yuan has bottomed out or still has room for declines, there are signals that the yuan is on the rebound, leaving many analysts to contend that the currency will have better years to come – only if a new trade agreement is reached.
The long-term future of the yuan could be a healthy one, if one central bank head’s words come true.
Bank of England (BOE) governor Mark Carney warned that the yuan will rival that of the U.S. dollar as a global reserve currency.
6. Canadian Dollar (CAD)
The Canadian dollar is one of the more vexing currencies. Every time it is believed that the loonie will have a breakout month, quarter, or year, the currency heads in the opposite direction or trades sideways. Last year, the delays, uncertainty, and negative coverage surrounding North American Free Trade Agreement (NAFTA) talks had a great impact on the Canadian dollar, even more so than the collapse in crude oil prices.
That said, in a world of unpredictability and instability, the loonie might be a currency to take a chance on. Though it is generally dependent on oil prices – they’re up 13% year-to-date! – the economy is generally stable, the credit rating is commendable, and political turmoil is minimal compared to its neighbours to the south, so this is still a good steady option for business financing.
7. Singapore Dollar (SGD)
Nobody talks much about the Singapore dollar when discussing the best currency to invest in. Why not?
- Here are some facts about the Singapore economy:
- Singapore is ranked as the second-freest economy in the world.
- Unemployment is under 2%.
- GDP growth averages roughly 4% per year.
- Taxes are low, the fiscal picture is healthy, and regulations are minute.
Since the Singapore economy relies mostly on trade, analysts are warning about a slight decline in gross domestic product in 2019. But Singapore is likely to weather the storm, even in the forex market. Over the last 12 months, the SGD/USD currency pair strengthened 1.6%, but to start the year, it has tumbled 0.8%.
Simply put: the Singapore dollar is the Asian version of the Swiss franc.
Who would have thought that the U.S. dollar would perform the way it did in 2018? Everyone thought it would suffer because of the U.S.-China trade spat, domestic political turmoil, and a popping stock market bubble. The dollar traveled in the opposite direction of what the market forecast and became the best currency to invest in. And this is how forex markets can work: it might defy conventional wisdom, or it could meet expectations.
Forex trading isn’t something to sneeze at. It requires exhaustive research, combing through data, and paying attention to the latest news and events. Of course, no news could be just as important as a lot of news. Whatever the case, start with any of these currencies and move on from there. Just don’t fall for things like the Iraqi dinar or reports that China could adopt a gold standard anytime soon.