If you talk to Australians about a recovery, they may wonder what all the fuss is about. After all, their football squad has already qualified for the World Cup in 2010.

Ohhhh... the investment markets. Riiiiiiiggghhht!

Indeed, Australian stocks were beaten like a rugby player's nose in 2008; still, the iShares MSCI Australia Index Fund (EWA) recovered post-Lehman losses and is currently showing year-over-year gains.

In some respects, this developed nation may actually have avoided a recession altogether. The Economist poll on GDP (expansion versus contraction) shows that Australia may finish 2009 with positive growth (0.5%).

Anecdotally speaking, many Australians report that housing prices have stabilized and that jobs are plentiful. Note: The August unemployment rate was 5.8%. However, there's a fair amount of government debate on whether unemployment will begin to level out or whether it will climb to 7% or higher.

Unfortunately (or fortunately), the most popular Australian-based ETF is heavily skewed towards 2 sectors: 30% financials, 30% materials. If you hold iShares Australia (EWA), you need to be mindful of your exposure to highly correlated funds such as Global Materials (MXI); the direction and the returns are nearly identical over the last 2 years.

That said, there's little doubt about Australia's resilience. Its Central Bank is already looking ahead to raising interest rates. (Imagine that!) And its dollar has risen sharply against the U.S. greenback. The CurrencyShares Australia Dollar (FXA) has picked up 21% through the first 9 months of 2009.

Although I'm a fan of what Australia can do for investors... and the Currency Shares Australia Dollar (FXA) has played a part in many client portfolios... I also recognize the Aussie dollar's role in the currency carry trade. Investors need to be careful of an unwinding of the carry trade, whether they have chosen the stock ETF (EWA) or the currency ETF (FXA).

The carry trade is not in immediate danger because of the way that the U.S. Fed has chosen to manage the fragile U.S. economy. Chairman Bernanke will keep benchmark rates low for an extended length of time. And that means the world's investors get to borrow dollars at ridiculously-low yields to invest the money in higher-yielding currencies or higher-income-producing stocks.

Recently, I identified winners of the U.S. dollar carry trade. And truth be known, I fully expect this intermediate-term trend to be intact. Short-term pullbacks will be met by buyers with cash on the sidelines as well as leveraged investing worldwide; that is, riskier assets will move higher as the U.S. dollar is weakening and/or kept at artificially low yields.

A correction of 7%-10% could happen for any reason. And one could actually argue that the U.S. markets witnessed a 5.6% pullback from the 1080 intraday high on 9/23/09 to the 10/2/09 intraday low. (But that'd be pretty lame market correction.)

More truthfully, a correction that challenges the S&P 500's 1000 level could become evident should the PowerShares DB Dollar Bullish Fund (UUP) climb above and stay above 23.3 in the next few weeks.

Nevertheless, we shouldn't see anything close to a bear market with this much willingness to borrow the U.S. dollar. The only way those forces change? I'd be concerned if the U.S. dollar proxy PowerShares DB Dollar Bullish Fund (UUP) made a serious run at a 200-day trendline. That'd be a long climb of 7.2% for the greenback as it stands today.

If you'd like to learn more about ETF investing... then tune into In the Money With Gary Gordon. You can listen to the show live or via podcast or on your iPod.

Disclosure Statement: ETF Expert is a web log (blog) that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.  

You can view Gary's daily market commentary at www.ETFexpert.com.  You can also email him directly at garygordon@mypacificpark.com.