Foreign investors are increasingly purchasing US equities, particularly tech stocks, while the US equity markets continue their daily rise. However, despite the influx of foreign money, the US dollar remains weak.<\/p>\n
US stock market performance trails behind that of countries like China, Germany, Italy, Canada, and Japan, where the Nikkei has risen by 32% this year. Currently, 80% of new US equity purchases by foreign investors are FX hedged, a phenomenon not seen in this decade, indicating an effort to minimise exposure to the US dollar.<\/p>\n
Foreign investors are actively removing dollar exposure by selling an equivalent amount of currency to mitigate FX risk. This trend will likely continue as the Federal Reserve is expected to cut rates further, which would make hedging US dollar exposure increasingly affordable.<\/p>\n
We are seeing a clear signal in the markets right now. Foreign investors are enthusiastically buying US stocks, especially in the technology sector, but they are leaving the US dollar behind. This is a rare split that creates a specific opportunity for traders.<\/p>\n
This trend is backed by recent data from this month, September 2025. While the Nasdaq 100 has pushed past the 21,000 mark, the U.S. Dollar Index (DXY) has dropped below 102, a level we haven’t seen consistently since early 2024. This weakness is being driven by the fact that nearly 80% of foreign equity purchases are being currency hedged, a record high which involves actively selling the dollar.<\/p>\n
For our equity positions, this suggests focusing on upside without being fully exposed. Buying call options or call spreads on tech-focused ETFs like the QQQ allows us to capture gains from the ongoing stock rally with defined risk. Selling put spreads below the current market level is another way to generate income, based on the belief that this strong foreign buying will support stock prices.<\/p>\n
On the currency side, the play is to bet against the dollar. We should consider buying put options on dollar-tracking ETFs like UUP or directly shorting USD futures contracts. This aligns with the massive hedging flows that are putting sustained pressure on the currency.<\/p>\n
This setup is getting stronger because the Federal Reserve is expected to cut interest rates soon, making it even cheaper to hedge dollar risk. The most recent August 2025 inflation report showed core CPI at 2.8%, giving the Fed room to ease policy. This situation, with a dovish Fed and strong, hedged foreign investment, reminds us of the dynamic we saw in late 2023.<\/p>\n
The CBOE Volatility Index (VIX) is currently trading at a relatively low 14, making options less expensive than they were earlier in the year. This low cost of entry makes it a good time to build positions that benefit from rising stocks and a falling dollar. We need to watch the upcoming Fed meeting closely, as the CME FedWatch Tool is already pricing in an 85% chance of a rate cut, and any surprise could significantly move the market.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Foreign investors flock to US tech stocks but hedge currency risk as dollar weakens and Fed eyes cuts.<\/p>\n","protected":false},"author":62,"featured_media":16961,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-30798","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/30798","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=30798"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/30798\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/16961"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=30798"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=30798"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=30798"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}