Skip to Content

Share this post

Chart of the week: The American Dollar is hardly a “very stable genius”

29 January 2018

Bob Cunneen, Senior Economist and Portfolio Specialist
 

USD vs Trade deficit

Sources: Financial Times, Federal Reserve St Louis  
 

Asian, European and emerging market currencies have surged against the USD over the past year. The USD has on a trade weighted basis fallen by -9% since the start of 2017 (black line). Even the “little Aussie battler” in our currency has risen sharply to 0.81 cents.

With Wall St at record highs and US interest rates rising more sharply than the rest of the world, the USD should be ascending rather than descending. However Asian and European economic activity is improving at a faster pace relative to the US. Also the US trade deficit continues to increase sharply (inverted red line) which indicates that the USD strength from 2011-2016 damaged US competitiveness.

The second possible explanation for this weak USD is political. Last week Treasury Secretary Steve Mnuchin suggested that  a “weaker dollar is good for us as it relates to trade and opportunities”. Then President Trump reversed that view by stating that the USD is going to “get stronger and stronger”. This shows confusion rather than conviction on what is the Trump Administration’s actual currency policy. The American Dollar is hardly  proving to be a “very stable genius” given this confusion.


Important information

This communication is provided by MLC Investments Limited (ABN 30 002 641 661, AFSL 230705) (“MLC”), a member of the National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686) group of companies (“NAB Group”), 105–153 Miller Street, North Sydney 2060. An investment with MLC does not represent a deposit or liability of, and is not guaranteed by, the NAB Group. The information in this communication may constitute general advice. It has been prepared without taking account of individual objectives, financial situation or needs and because of that you should, before acting on the advice, consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs. MLC believes that the information contained in this communication is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as at the time of compilation. However, no warranty is made as to the accuracy or reliability of this information (which may change without notice). MLC relies on third parties to provide certain information and is not responsible for its accuracy, nor is MLC liable for any loss arising from a person relying on information provided by third parties. Past performance is not a reliable indicator of future performance. This information is directed to and prepared for Australian residents only. MLC may use the services of NAB Group companies where it makes good business sense to do so and will benefit customers. Amounts paid for these services are always negotiated on an arm’s length basis.