The Impact of a Strong U.S. DollarCurrencies / US Dollar Jan 09, 2016 - 10:38 AM GMT
Impressive drivers continue to surface for the U.S. dollar. And the impact lingers on many fronts.
One measure is the recent positive U.S. jobs report. This adds to the dollar's already bullish tone as it dials up pressure on the Fed to raise interest rates in the months ahead.
2015 ended on a hiring spree with nonfarm payrolls up 292,000 in December keeping the unemployment rate at a solid 5%.
Annual GDP, a measure of the economic growth rate, is another positive marker.
U.S. GDP expanded at a modest rate of 2.10% in the 3rd quarter. Though not stellar, but compared to other G9 economies (Europe's at 1.60%, Japan's at 1.60% and Canada's at 1.20%), the U.S. is growing.
In comparison, China's post 2009 GDP peaked at 12% and is now at 6.9%, a 48% decline in 6 years.
However, as the U.S dollar continues to have positive tailwinds, the impact on other currencies is not so constructive.
The Euro has declined 23%, the Yen is down 14%, the Australian dollar is off 25% and the Canadian dollar has dropped by 29%, all within the last 18 months.
The price of Light crude oil, another casualty of the rising US$, is off by a staggering 69% since mid-2014. Projections point $27.50 as the next downside target.
Bottom line: Positive drivers continue to advance the U.S. dollar verses other G9 currencies. Impressive employment gains and GDP numbers are just some of the markers that are pushing the US$ higher.
The USA is the first of the G9 economies that is feeling confident enough to begin rising its interest rates. And with solid fundamentals, the Fed will be under pressure to keep raising rates in the months to come.
In response, many world currencies and commodities will continue to feel strong headwinds in the months ahead.
By Donald W. Dony, FCSI, MFTA
COPYRIGHT © 2015 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present. He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.
Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms. He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.
Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).
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