Fund Review
After a weak 2nd quarter of the year, the US dollar came marching back strongly as global risk aversion set in (investors selling out of riskier regions and investments and heading for the safety of US government instruments). During the quarter, the dollar gained 7.7% against the euro, 8.2% against the Norwegian kroner, 8.3% against the Canadian dollar, 7.5% against the Swiss franc, 2.9% against the pound and 9.9% against the Aussie dollar; it only lost against the Japanese yen (4.5%).

The underlying Fidelity Institutional US Dollar Fund has as its objective to offer capital preservation, daily liquidity and a stable net asset value, whilst producing a return to the investor in line with money market rates. The fund is rated AAA by Standard & Poors and by Moody's Rating Agency. The fund holds money market instruments with a weighted average maturity of 36 days and is paying a yield higher than its benchmark.

Looking Ahead
As long as European leaders continue to dither and delay without making definitive moves to stabilize the government debt situation, investors may continue to switch money into the US dollar as a safe haven. It is as simple as that. Europeans typically have low allocations to equities, so they are not as sensitive to sharp stock market declines as most other regions.
Meanwhile Federal Reserve Chairman, Ben Bernanke, has made it clear that the Fed will keep interest rates at these record low levels for perhaps a long as the next 2 years, meaning that interest rates on the fund are likely to remain at rock-bottom levels for a while.

Fund Review
Most of the major currencies strengthened against the greenback during the quarter under review. The unit lost 2.4% in exchange value against the euro and 9.4% against the Swiss franc while the New Zealand dollar appreciated 9.4%. The South African rand remained basically flat, appreciating just 7 basis points this quarter.

The underlying investment in the Fidelity Institutional US Dollar Liquidity Fund continues to deliver superior performance and is an Aaa Moody's rated investment. The Fund is yielding around 13 basis points per annum over a 30-day period compared to the index which is yielding 4 basis points. The weighted average maturity has been extended and is now around 35 days and just less than 15% of the $3.2bn fund can be liquidated ovemight.

Looking Ahead
Global central banks now hold over $10 trillion in FX reserves. Ten years ago, the dollar made up 70% of central bank reserves, now the dollar makes up 60% of these reserves. Emerging market central banks are also holding fewer dollars. This has lead to central banks diversifying their currency reserves, thereby having strong implications for other currencies.

Reflationary policies in the US, a widening budget deficit combined with quantitative easing and near zero rates are placing downward pressure on the US dollar. Emerging economies are comfortable with their currencies appreciating against the greenback and are no longer willing to hold all of their FX reserves in the dollar but rather a basket of currencies which includes the euro and other commodity currencies. This does not bode well for the unit in the short term.

Fund Review
The US dollar was weaker this quarter against most of the major currencies and is trading at cyclical lows in the broad US dollar index, well below the 200-day moving average. The rand however depreciated slightly against the greenback and local investors gained 2.1% from the exchange rate alone. The rand weakened substantially between New Year's Eve and mid February losing 10.7% (7.33/$) against the US dollar but then made an impressive comeback (6.77/$) on the perceived stability of the South African economy post the budget speech and better than expected GDP results for the fourth quarter.
The underlying investment in the Fidelity Institutional US Dollar Liquidity Fund continues to deliver superior performance and is a Aaa Moody's rated investment. The fund is yielding around 33 basis points per annum over a 30-day period compared to the index which is yielding 12 basis points. The weighted average maturity has been extended and is now around 41 days and just less than 20% of the $3.6bn fund can be liquidated overnight.

Looking Forward
The remainder of 2011 is likely to be about balance sheet repair and recuperation after the severest economic downturn since the 1930's. The recent spike in oil and food prices is obviously a concern and will impact negatively on the state of the US consumer. However, these factors are not expected to derail the current economic recovery, but they do lend support to our view that the current US economic recovery is likely to remain somewhat unexciting unless there is a more meaningful increase in employment. The Federal Reserve remains committed to ensuring a continued economic recovery. Interest rates are likely to remain unchanged throughout 2011.

The greenback gained 2% against the euro during the last quarter of 201 0 and 1.7% against the pound, although it weakened further against the very strong Swiss franc, while the rand strengthened by a further 5% in the quarter closing the year gaining 11.6% amongst volatile trade. The rand was at its weakest in May where it traded 7.96/$ and traded at its strongest levels on New Year's Eve where the rand was bid at 6.63/$, a level not seen in three years! The rand strength did not help unit holders in the Dollar Cash Fund and the rand's gains would have amounted to rand investors losing value for every unit owned in the Fund. The underlying investment in the Fidelity Institutional US Dollar Liquidity Fund continues to deliver superior performance and is an Aaa Moody's rated investment. The Fund is yielding around 33 basis points per annum over a 30-day period compared to the index which is yielding 13 basis points. The weighted average maturity has been extended and is now around 38 days and just less than 30% of the $3.9bn fund can be liquidated ovemight.

Looking Ahead
2011 is likely to be another year of balance sheet repair and recuperation after the severest economic downtum since the 1930's. Debt repayment is inherently a deflationary process and in over-indebted nations such as the US, the expectation is for growth and inflation to therefore be lower. The Federal Reserve remains committed to ensuring a continued economic recovery. Interest rates are likely to remain unchanged throughout 2011 and inflation seems to be non threat. The combination of low interest rates and low inflation should provide a favourable environment for fixed income investors and continued upside for equities.