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In 2009, so-called commodity currencies – both individually and as a group – registered record-breaking gains. The Brazilian Real and the South African Rand finished up more than 30%, while the Australian and New Zealand Dollars finished up about 25% each, and the Canadian Dollar not far behind. While the outlook for 2010 is slightly less rosy (if only because of the law of averages), investors would still be wise to keep such currencies on their radar screen.

With the appreciations of 2009 canceling out the depreciations of 2008, currency markets are close to “equilibrium.” Going forward, then, investors will to find a rationale other than sheer momentum for making bets. Strong commodity prices represent one such rationale. This is not only the case because currency prices are rising and are underpinning the recoveries in the respective countries that are rich in their production, but also because economic recovery – and “normal” growth as well, for that matter – in many other economies is built precariously on debt and the expansion of sovereign money supplies.

Commodity currencies – and commodities in general – have always held allure as investment vehicles because of their tangibility and necessity. Simply, modern economies depend on commodities for their functioning. Thus, countries rich in natural resources would seem to represent safe bets, since they can be assured of demand both during periods of expansion and during economic downturns.  The strong performance of commodity currencies in 2009 underscores this point, since despite the fact that prices for many commodities are well below the record highs of 2008, these currencies are very close to their 2008 highs.

More specifically, the Canadian Dollar often tracks the price of oil; this correlation will probably only strengthen when the oil sands of western Canada are developed. While rich in many natural resources, it is gold that both Australia and South Africa are famous for, and to which their currencies are often tethered. Brazil and New Zealand deal in a more diverse array of commodities, and the Kiwi and Real often move in tandem with broad-based commodities indexes. There is also the Mexican Peso (oil), the Russian Ruble (natural gas), the Norwegian Krona (oil), and Chilean Peso (copper), but the correlations between these currencies and the respective commodities for which they are famous tend to be looser.

Of course, there are many other economies that are rich in natural resources, but for various reasons (lack of liquidity, fixed exchange rates), their currencies aren’t (as) appropriate for investing. Even the currencies I listed above don’t always reflect commodities prices. For example, Canada’s fiscal problems and South Africa’s monetary easing will arguably weigh down the Loonie and Rand, respectively, in 2010.

For commodity pure-plays, your best bet, then, would be to invest in the commodities themselves. Of course, commodities don’t pay interest and their costs associated with holding them (whether directly or indirectly) and they tend to fluctuate with greater volatility than currencies. Another option is the just-announced WisdomTree Commodity Currency Fund, an ETF composed of a basket of commodity currencies, many of which I listed above.

Karl Marx would be pleased…well, maybe not. In any event, the world’s Central Banks are tired of the weak Dollar, and are separately taking matters into their own hands. [Before I continue, I should probably acknowledge the inherent dangers of lumping every Central Bank together under one umbrella. Still, given the current market environment, and the fact that all Central Banks are acting uni-directionally, it seems like a fair categorization].

As I was saying, Central Banks – especially in the developing world – are extremely unhappy with the Dollar’s continued decline, and with the opposing strength in their respective currencies. Over the last year, these Central Banks have waded into the forex markets, one after another, in a non-concerted effort to stem the gains in their currencies. As the Dollar’s decline has gained new momentum, so have they redoubled and intensified their efforts.

In the last couple weeks alone, at least a dozen (and these are only the ones on my radar screen) have issued threats and/or taken action aimed directly at the “speculators,” which are blamed for the across-the-board rise in emerging market currencies and asset prices. Their concerns are twofold: that currency appreciation could choke off economic recovery, and that speculative investment is driving the creation of new asset price bubbles.

While their goals are largely the same, their tactics differ. Some are testing the old approach of simply buying Dollars on the spot market. Thailand, Israel, South Korea, Philipines, and Russia, for example, are now intervening heavily on a regular basis. “Experts estimate that some of the largest emerging economies may have spent as much as $150 billion on currency intervention over the past two months, judging from the growth of their international reserves, according to data from Brown Brothers Harriman.”

Other Central Banks have resorted to policy-making measures; Taiwan and Brazil are perhaps the best examples here. The former has essentially banned foreigners from opening new time deposits in the country, while the latter has just imposed a 1.5% tax on investment in Brazilian ADR shares to match the 2% tax on new FDI. In addition, sources claim that other measures are being considered, including “an overseas sovereign bonds issue denominated in Brazilian reals and a change in rules that would allow foreign equities investors to deposit guarantees overseas.”

South Korea and Sri Lanka have been even more creative in restraining their currencies. Sri Lanka is now making it easier for its citizens to take money out of the country, while South Korea is now placing limits on the hedging activities of exporters, who “have sold large amounts of dollars in the forward market to hedge foreign orders, putting upward pressure on the won.”

Still other Banks are still in the “rhetorical” stage of intervention, whereby they simply convey to investors that they are monitoring forex markets for “instability” and “irregularities.” Such code-words are designed to signal that rapid currency appreciation will not be accepted idly. “People see the central bank looking closely at the dollar and think maybe it’s a good time to unwind some of their positions,” explained one analyst in response to “rhetorical intervention” by the Bank of Chile.

Unfortunately for these Central Banks, their efforts are ultimately unlikely to be successful. They can probably succeed in slowing, or even temporarily halting the rise in their respective currencies, but won’t be able to achieve a permanent cessation. That’s because the forces they are fighting against are simply too large ($3 Trillion per day of forex turnover) and too determined (Russian and Brazilian interest rates are both above 8%, compared to 0% in the US) to be stopped. “It’s [intervention] not working, and it’s a good thing that it’s not working. Emerging-market currencies are appreciating and they’re going to keep on appreciating against currencies from the old world. [Central Banks] has to adapt to that,” declared one trader. Still, you can’t blame them for trying.

Today we bring you an interview with hedge fund manager Howard Lindzon, author of The WallSTRiP Edge and co-founder/CEO of StockTwits. Below, Howard discusses his interest in currency trading, as well as his general approach to investing.

Forex Blog: As a forex blogger, I am eager to hear how and why you developed a sudden interest in forex.

It is not a sudden interest in forex.  For years, I had money with trend following managers and slowly saw the way people traded currencies.  My new fascination comes from all the people on stocktwits talking currencies at odd hours

Forex Blog: Does your primary interest lie in currencies, themselves, or rather in the people that trade them? In other words, is it your intention to invest directly in currencies or instead to identify companies that successfully market services to currency traders? Perhaps a combination of both?

I own the Canadian Dollar right now and also gold so my fascination is in the way different things move different markets.  Currencies move from macro policies and they seem to trend better.  For me, It’s now a combination of both.  I am learning to get a feel for currencies as I hear individuals on stocktwits actually talk about them.

Forex Blog: While it’s true that forex remains off the radar screen of many retail investors, I must point out that it’s already by the far the largest market in the world, with an estimated $4 Trillion in daily turnover. In spite of this, it seems you’re still quite optimistic about its prospects for growth?

I am optimistic because of many trends.  The online brokers are way behind and must catch up.  The forex brokers are way behind and see the retail consumer as a growth market and there seems to be chaos so it should be interesting which new winners emerge.

The world has indeed flattened and shrunk and currencies should be a more exciting topic as governments collide more often.

Forex Blog: Are there specific currencies that you are interested in, and/or that you believe are currently undervalued?

It is really exciting to watch the action in the dollar.  I try to see the big picture.  We are printing money and our policies are not changing.  it seems the us government wants a cheaper dollar which would be fine, but they are also manufacturing it, so I don;t think it will work out well for it.  I just don’t have a timeframe.

Forex Blog: As some of your readers pointed out, the forex market is currently saturated with fraud. New regulation is expected to clamp down on unethical business practices, but could also lower the appeal of forex by cutting leverage from 200:1 to levels associated with trading stocks retail. How will changes in regulation factor into your investment approach?

The regulation on our little community comes from the community itself.  If I am learning, I think I can get others excited about learning…if not to trade, than to see how the currencies and government policies affect stock prices and other markets.  I try not to worry about regulation…my size also keeps me out of the stress of it as I am too small.

Forex Blog: Shifting gears a bit, why did you decide to found/back StockTwits, a self-described “community-powered idea and information service for investments?”

I founded stocktwits to help me better track my ideas from a trusted source of friends.  It’s about getting the info i want, when I want it, on any device, from the group I want it from.  All that has happened is that thousands of others want info the same way. With the new filters and discovery features of twitter and now stocktwits, the speed to knowledge is faster than ever and its fun.

Forex Blog: How would summarize the growing appeal of StockTwits to its users? In other words, how does StockTwits (intend to) distinguish itself from the hundreds of other popular forums and message boards dedicated to the art of investing?

Community is the real differentiator.  Every community is different.  Ours just has some pretty cool features in it and i love the context our ticker has and the breadth of knowledge.  I also believe in the ‘farm system’ of distributed talent and having an expert pop up out of nowhere and get rushed to the top.  It’s like…oh my god…we need a doctor…BOOM, thousands of people are asking around for a doctor and then you get one right away.  It’s social leverage at work.

Forex Blog: If StockTwits expanded to the point where user comments/activity influenced asset prices (as happens occasionally with RagingBull and Jim Cramer’s Mad Money), would you view this is as a positive or negative development?

If we move markets, that’s good;  it’s an evolution.  I doubt we will and if we do, I am hopeful it is for the right reasons and we will do everything within our power to nudge the community in the win/win, do the right thing way.  We are going to be wrong all the time too so moving the market is not something people should be worried about.

Forex Blog: Finally, what advice to you have for investors that want to beat the market (any market, really) during the credit crisis?

I have never routinely beat the market.  I invest heavily and with a long term time frame when I feel I have an edge.  I want to beat the market not daily, weekly or yearly, but over decades.  You need to pick the asset classes that jibe with your passion, thinking, energy, risk levels, liquidity needs and then passionately chase the returns.