How Do Other Currencies Affect The US Dollar?

It is no secret that the United States Dollar is the running currency in the world. It is the default currency at which products, services and virtually everything else is exchanged/traded. What does this mean for other currencies? Are there any correlations that we can spot to better affect our trading and/or understanding of the world economies? Absolutely… Here they are..

Currency Correlations

  • The Canadian dollar and crude oil have a positive correlation because Canada is a significant oil producer and exporter. As crude oil goes up, so does the Canadian dollar and the inverse is also true.
  • Similarly, the Australian dollar and gold have a positive correlation because Australia is a significant gold producer and exporter. Both gold and the Japanese Yen are viewed as safe havens in times of uncertainty, and these two are also positively correlated. As gold declines, so does the Aussie.
  • Meanwhile, gold and the U.S. dollar typically have a negative correlation. 
  • When the U.S. dollar starts to lose its value amid rising inflation, investors seek alternative stores of value such as gold.

Supply Vs. Demand for Driving Dollar Value

When the U.S. exports products or services, it creates a demand for dollars because customers need to pay for goods and services in dollars. Therefore they will have to convert their local currency into dollars by selling their own currency to buy dollars to make the payment. In addition, when the U.S. government or large American corporations issue bonds to raise capital that are then purchased by foreign investors, those payments will also have to be made in dollars. This also applies to the purchase of U.S. corporate stocks from non-U.S. investors, which would require the foreign investor to sell their currency to buy dollars in order to purchase those stocks. Here are a list of issues that affect our US dollar

Things that measure our dollar value

  • Payroll data – Nonfarm Payrolls
  • GDP Data – Gross Domestic Product Data
  • Interest Rates – Rising Rates = Higher US dollar Lowering Rates = Lower US Dollar
  • Inflation Rates – Self explanatory
  • Balance of Payments/Accounts Payable – How much you owe to foreign countries and their willingness to continue to trade with you
  • Terms of Trade – (how long, which currency will be used to pay and what are the collateral conditions)

Another huge leg which accounts for 1/3 of our economic conditions is the :

Consumer Confidence Index– The Consumer Confidence Index is a survey, administered by The Conference Board, that measures how optimistic or pessimistic consumers are regarding their expected financial situation.

  • The Consumer Confidence Index (CCI) is based on the premise that if consumers are optimistic, they will spend more and stimulate the economy but if they are pessimistic then their spending patterns could lead to a recession.
  • The Consumer Confidence Index (CCI) is based on the Consumer Confidence Survey, which is a survey of 5,000 households, and is released on the last Tuesday of every month.
  • The CCI is released on the last Tuesday of every month and it is widely regarded as the most credible gauge of U.S. consumer confidence. Essentially, it is a barometer of the health of the U.S. economy and is based on consumers perceptions of current business and employment condition, and their expectations for business, employment, and income for the next six months. CCI is conducted by Nielsen, a global provider of information and analytics on consumers’ buying and watching habits.

Understanding How Our Currency Became The World’s Leading Currency

How was the Federal Reserve was created?

  • On December 23, 1913, The Federal Reserve Bank/Act was created to stabilize our economy. The reality was that the United States was broke and as a result, Woodrow Wilson had to sign the Federal Reserve Act which basically created our modern dollar print.
  • Marriner EcclesMarriner Eccles was one of the premier economic thinkers of his time. The Chairman of the Federal Reserve under Presidents Roosevelt and Truman, Marriner was integral to the economic policies of the 1930s and ’40s; he was a staunch advocate for the independence of the nation’s central bank, and a voice of the New Deal.

Few thing to consider

  • This is a public company. (The richest families in the world created their own company and LEGALLY gave birth to their own currency when America became bankrupt). This is when the US dollar became a TREASURY NOTE. 
  • All foreign policy including wars have to do with economic agreement/disagreement. The policies in turn create dependencies, sanctions and inevitably wars..
  • Whats happening now? China is rivaling the dollar in terms of GDP growth.. This means that they could potentially replace the US as the leading economic currency.
  • A rising USD exchange rate also makes it more expensive for banks to fund U.S. dollar lending outside the U.S., which could make it more difficult for companies to obtain USD finance for trade or investment. Conversely, when the USD exchange rate is falling, banks are more willing to lend dollars across borders, enabling international businesses to extend their supply chains and invest in new foreign ventures.
  • Further, the effect of changes in the broad USD exchange rate is significant. The researchers show that a one point increase in the broad dollar index is associated with a decline in the annual growth of accounts receivable by 0.28 percent, a decline in payables growth by 0.62 percent, and a decline in inventory growth by 0.40 percent.8 Bottom line is if our economy tanks, so do a handful of other currencies in the UK, while strengthening the Asian currencies.