Currency Rotation
| Major Central Banks |
| Central Bank | Current | Previous | Date of Last Change |
|---|
| Federal Reserve | 0.25% | 1% | 2008-12-16 |
| European Central Bank | 1% | 1.25% | 2011-12-08 |
| Bank of Japan | 0% | 0.1% | 2010-10-05 |
| Bank of England | 0.5% | 1% | 2009-03-05 |
| Bank of Canada | 1% | 0.75% | 2010-09-08 |
| The Reserve Bank of Australia | 4.25% | 4.5% | 2011-12-06 |
| Swiss National Bank | 0.25% | 0.5% | 2009-03-12 |
| Major Emerging Markets Central Banks |
| Central Bank | Current | Previous | Date of Last Change |
|---|
| People's Bank of China | 6.56% | 6.31% | 2011-07-06 |
| Bank of Russia | 8% | 8.25% | 2011-12-23 |
| Central Bank of Brazil | 10.5% | 11% | 2012-01-18 |
| Reserve Bank of India | 8.5% | 8.25% | 2011-10-25 |
| Bank of Mexico | 4.5% | 4.75% | 2010-07-17 |
| North America |
| Central Bank | Current | Previous | Date of Last Change |
|---|
| Canada | 1% | 0.75% | 2010-09-08 |
| Mexico | 4.5% | 4.75% | 2010-07-17 |
| US | 0.25% | 1% | 2008-12-16 |
| South America |
| Central Bank | Current | Previous | Date of Last Change |
|---|
| Brazil | 10.5% | 11% | 2012-01-18 |
| Chile | 5% | 5.25% | 2012-01-12 |
| Colombia | 5% | 4.75% | 2012-01-31 |
| Peru | 4.25% | 4% | 2011-05-12 |
| Europe |
| Central Bank | Current | Previous | Date of Last Change |
|---|
| Czech Republic | 0.75% | 1% | 2010-05-06 |
| Denmark | 0.75% | 1% | 2011-12-09 |
| European Monetary Union | 1% | 1.25% | 2011-12-08 |
| Hungary | 7% | 6.5% | 2011-12-20 |
| Iceland | 4.75% | 4.5% | 2011-11-02 |
| Norway | 1.75% | 2.25% | 2011-12-14 |
| Poland | 4.5% | 4.25% | 2011-06-08 |
| Russia | 8% | 8.25% | 2011-12-23 |
| Sweden | 1.5% | 1.75% | 2012-02-16 |
| Switzerland | 0.25% | 0.5% | 2009-03-12 |
| United Kingdom | 0.5% | 1% | 2009-03-05 |
| Asia and Oceania |
| Central Bank | Current | Previous | Date of Last Change |
|---|
| Australia | 4.25% | 4.5% | 2011-12-06 |
| China | 6.56% | 6.31% | 2011-07-06 |
| Hong Kong | 0.5% | 1.5% | 2008-12-17 |
| India | 8.5% | 8.25% | 2011-10-25 |
| Indonesia | 5.75% | 6% | 2012-02-09 |
| Japan | 0% | 0.1% | 2010-10-05 |
| Malaysia | 3% | 2.75% | 2011-05-05 |
| New Zealand | 2.5% | 3% | 2011-03-10 |
| Philippines | 4.25% | 4.5% | 2012-01-19 |
| South Korea | 3.25% | 3% | 2011-06-10 |
| Taiwan | 1.875% | 1.75% | 2011-06-30 |
| Thailand | 3% | 3.25% | 2012-01-25 |
| Africa |
| Central Bank | Current | Previous | Date of Last Change |
|---|
| Egypt | 9.25% | 8.25% | 2009-11-28 |
| South Africa | 5.5% | 6% | 2010-11-19 |
| Middle East |
| Central Bank | Current | Previous | Date of Last Change |
|---|
| Israel | 2.5% | 2.75% | 2011-01-23 |
| Saudi Arabia | 0.25% | 0.5% | 2009-06-16 |
| Turkey | 5.75% | 6.25% | 2011-01-20 |
Tables last updated on 02/18/2012.
The currency rotation strategy is our method for identifying developed market currencies that are likely to appreciate. It combines valuation, momentum, and yield strategies into one system for currencies. Because strategies sometimes undergo periods of underperformance, combining several uncorrelated strategies can help raise returns while lowering risk.
Methodology
First, we sort the currencies by the sub-strategies. We use purchasing power parity to measure valuation, the previous 12 month return to measure momentum, and the central bank rate to measure yield. The top currency in each sub-strategy gets a score of 1, the next one is assigned a score of 2, and so on. The final rankings are determined by sorting the sum of the scores they received from each sub-strategy.
How to use the Currency Rotation strategy
One way to use this strategy would be to buy the top two or three currencies and sell the bottom few currencies in a forex account. Forex accounts generally come with leverage, so it would be possible to earn higher returns this way as long as the leverage used is not more than 2x.
Another method is to buy the corresponding ETFs to the top two or three currencies in a brokerage account. This is a simple way for stock or ETF investors and is a great way to hedge against a decline in the dollar and to add diversification.
