Dollar and Change…
The US dollar is the strongest it has been in 13 years. And that’s a good thing right? Because we equate ‘strong’ with positive, with growth. In this context the dollar is sturdy, it is robust, it can weather any storm, hold its own and all the other synonyms and idioms we can throw at it.
But is strong always a good thing? Well, not necessarily. In the Forex markets when one currency is strong, it means that another has to be, by default, weak. And those ‘strong’ and ‘weak’ points are really just high-water marks from when the markets performed well before. In the case of the current strong dollar versus the Canadian dollar, strength is around $1.10 for every Canadian dollar. In the case of the British pound, it’s around $1.45.
At the moment the dollar is performing well against all the major currency pairings that we offer at Fractalerts. The last time it was doing as well as this was around about 2003, which is piquing a lot of interest in the currency markets. People want to know why the dollar is doing so well now, how long will it continue, and how can they make money by trading money. We’ll take this one at a time…
At the moment the dollar is performing well against all the major currency pairings that we offer at Fractalerts.
What’s Special About Now?
Essentially the current boom in the dollar is down the the US economy. If the economy that trades and creates the currency is in good shape, well that will trickle out to the currency. And if, like in the case of the US, the country’s economy is, on the whole, doing better than the economies of those it trades against in currency pairings, well, it should win out there too.
At the moment the US economy is doing well, and when that happens people want a piece of the action. Putting money into US ventures, business and schemes is instantly more likely to net you a better return than putting it into a failing economy. But in order to make that investment, well, you are going to need dollars. Demand then rises for dollars compared to other currencies, dollar gets stronger, economy builds, cycle continues… yada yada…
But How Long Is It Going To Last?
This is the tricky part of strong currencies. They are good in some ways, but not so great in others. And how long it takes before the bubble bursts, well, its not an exact science.
At the moment US businesses and individuals are enjoying the strong dollar. It means they can get more bang for their buck. They can import more, because items abroad are cheaper (they are priced in currencies that are ‘weak’ against the dollar after all). So everyone, in theory, buys more. Loads more. Ten of those, a hundred thousand of these… ‘got that in blue? Great, put me down for a million…’.
But. Unfortunately, while the US population is going on mad shopping binges (admittedly only in this explanation and we’ll get to that soon), the rest of the world who want to buy stuff from the US are scrapping together their weaker currencies and trying to make purchases when their currencies don’t buy them as much in the US.
Consequently, the imports might be up, but the exports of the US have gone down.
Stick with us, we are about to simplify this even further…
Two weeks ago, we saw some disappointing figures out from the US. This showed lower than hoped employment and manufacturing. In reality consumer spending in the US is also slowing up (our point above about people not buying so much), which is tied to these slower employment rates.
The dollar is strong! Boom! That’s a great thing right? Well, no. At the moment it isn’t. Its causing US jobs to go under and threaten the wider manufacturing sector.
If it continues like this, well, the dollar is going to tick down pretty soon unless the government steps in and start subsidizing the sectors which are hit worst. The delay in the interest rate increase is one way of doing that, but going forward it may need further intervention to keep the economy ticking over and the dollar ticking up.
So How Can I Make Money?
Okay, so regardless of what happens with the dollar, there is still money to be made from the Forex markets. But as you can see with our incredibly simplified version, there is already a lot to think about.
The balance between the global currencies is continually evolving, and the Forex markets are also continually open (24 hours a day, but on a shorter 5 day week). This means that investors need to be constantly aware of what is happening globally. A surprise manufacturing report in Asia can cause ripples across the Forex world when you are still tucked up in bed on US soil, for example.
This is now the point that we normally would advocate our alerts. Sure, take a look at the website and see if they are of interest, but whether you go with us or with one of the many Forex companies out there, be sure you have a strategy.
At the moment the dollar looks strong against the major currency pairings, but the price of oil can swing the USDCAD instantly, the Brexit discussions continue to wield over the GBPUSD and EURUSD, and the adverse weather in Oz is also pushing the AUDUSD all over the shop. Government intervention can also cause the markets to dip or spike instantly (we’re looking at you Switzerland).
Get on the right side of the dollar’s strength and you can make a buck, but be aware of the reasons why the currency is up, and you’ll end up with more than just change.