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Happy Thanksgiving! Or is it? – A look at the Strength of the Dollar against the Global Economy
The cold winter has suddenly crept in this November and I pondered over writing a straight-talking, methodical gold-analysis article. Then with the next tap of the keyboard I decided against it.
Today is the final Thursday of November and in the US it is the public holiday of Thanksgiving (if you’re Canadian it was last month). For those of you not au fait with what the holiday is (it doesn’t take Sherlock to derive the meaning from the title), it is a
public holiday dedicated to the feast shared between Pilgrims and Native Americans in the 17th Century. Whilst the holiday gives us all a rest from the drama of an expedited closed FOMC meeting, the rates rise has never been far from the mind.
The precious metals market has suffered this year, wrestling with the strength of the dollar. The price for palladium has fallen from the highs of $831 in March down to $537 currently which equates to a 35.3% drop. Likewise, Platinum has fallen from $1,285 in January down to $840 as of today, totalling a 34.6% fall. Lastly, Gold’s often beleaguered follower Silver has fallen from $18.23 in January down to almost exactly $14.07 per ounce, a drop of 22.8%.
The Dollar however has seen its strength regroup this year. Below is a handy chart delineating currency movements and trade per country- with help from the US’s Foreign Trade stats – 2015 Year to Date. Also included is the UK (currently 7th in Top Trading Partners):
Country Currency Lows Year to Date Current Price Change Total Trade per Country China 6.1135 USD/CNY 6.3899 USD/CNY +4.5% 441.6 Canada 1.1830 USD/CAD 1.3325 USD/CAD +12.6% 438.1 Mexico 14.5997 USD/MXN 16.6605 USD/MXN +14.1% 397.4 Japan 117.61 USD/JPY 123.05 USD/JPY +4.6% 145.8 Germany 0.8433 USD/EUR 0.9369 USD/EUR +11.1% 129 UK 0.6345 USD/GBP 0.6572 USD/GBP +3.6% 88.6
The table above relates to goods alone. The stats above are certainly impressive and are indicative of a stronger US economy.
When you delve a little deeper into exporting/importing of goods, China and the US are first and second respectively when exporting and second and first when importing, which is what one would expect. However with commercial services, the US lead the way in exporting with the UK in second. China on the other hand have to import a great deal more of commerical services and don’t export as greatly as I’m sure they will in years to come. When you look at the trade information provided by the United Nations Conference on Trade and Development (catchy title), across the board the US are leading by quite some way. For the moment then, the US have the edge on China.
In truth, the strength of the Dollar and the subsequent demise of commodities for the mean time, is hardly surprising. The US have more fingers in established ‘pumpkin’ pies and the Chinese, although I’m sure won’t be bested for long, have been dependent on goods rather than services. Commodity price drops will help the squeeze in the long term and the Chinese no doubt will capitalise on that.
Verdict:- Commodity prices have arm-wrestled the rising dollar, which for the time being has won the battle. What will be interesting is what will happen as the interest rates shift upwards creating more pressure on global currencies and more exactly on each of the trade partners. It won’t be a surprise if the global economy is squeezed back into recession – Japan have already fallen victim of this already. Whatever the course may be, it may well be out of our hands already. As Americans around the world tuck into their Thanksgiving turkey, the most of unlikely places is also getting in on the act – the Russians have decided to join the table and they also may tuck into Turkey.
Article by Michael Cooper