THe US Dollar index (DXY) is one of the most well known and quoted currency index in the world. The index represent the value of the US dollar against a basket of major currencies and the direction of the index is often a shorten hand on the overall the direction of US Dollar.
What Currencies are in the US Dollar Index?
The index unlike market cap indicies like the S&P 500 is a fixed weighted index which means the weights of the individual components are fixed and does not change overtime.
The advantage of a fixed weight index is that the historical values of the index can be calculated over a long period time with the performance being a like for like comparison of the individual components in the past.
The USD index is comprised of 6 currencies at these fixed weights.
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The index can be calculated up to 3 decimal places but the usually quoted by to the 2 decimal places.
A downside of the USD index being a fixed weight index is that it does not change overtime to reflect the changes to the US economy. It is a static snapshot of the main exposures against US at that point in history and not a real representative of the current weight of trading currencies in the US dollar terms. The only time the basket was adjusted was when several European countries adopted the use of the Euro as legal tender.
Mexico is one of the United States largest trading partner but the Mexican peso is not included in the index. Similarly, one could argue that the weight of the Euro and Japanese Yen need to be adjusted to reflect the changes in importance to the US economy overtime. The changes in the Euro and Yen will have outsized impact on the changes in the index value.
US Dollar Index Chart
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The US Dollar index chart shows that the dollar has been relatively stable compared to equity indicies like ASX 200 or even individual FX rate like the AUD/USD.
The FX market is open for trading 24 hours a day so the index can be calculated in real time. The value used in the daily chart of the USD index is based on the same point in time everyday.
Movements in the exchange rates are mostly determined by interest rate differentials of the currencies and the market expectation of future interest rate changes. Aside from the EUR and JPY, the actions of the Federal Reserve plays a large role in directing the market expectations. Any changes in quantitative easing will affect market’s view of the currency.
For the EUR and JPY, the respective action of the BOJ and ECB will also affect the value of their currency and are a major factor in setting market expectaions and view of the currency against the US dollar.
Live US Dollar Index Value (Real Time)
The table below shows the live value of the USD Index currently based on the value of the underlying exchange rates.
Investing the DXY Index
The ICE exchange has listed a USD futures contract which tracks the changes of the DXY index. These are quarterly contracts over a fixed set of quarters in March, June, September nad December.
The next expiry contract is called the front month contract and it is the most liquid contract in terms of trading volume and it is settled in cash. This means at expiry, the buyer or sell will pay the difference between the entry price and the final settlement price.
The value of the US dollar future is based on the index point at the time multiplied by the $1,000. So if the index future is 95.55 then the value of the contract will be $95,550.