The US Dollar Has Had a Great Year

The US Dollar Has Had a Great Year

Although the US economy has had its ups and downs, the US dollar is still strong. Part of the reason why is how miserable the rest of the world has been doing, but another part is how well the economy has weathered the storm.

In August, when the Chinese devalued their currency, the yuan, it shook global markets for weeks. However, even bigger currency shifts have been happening around the world all year. One of the biggest, the fall of the Russian ruble, has barely made a dent in the world economy. Yet the event was much, much larger.

Falling crude oil and gas prices have decimated the energy-heavy Russian economy.
New oil fields in Siberia have been explored, but they’re currently too expensive to pump. The same is true of some offshore resources. The drop in the price of oil has driven down the value of the ruble by an incredible 29% compared to the US dollar.

Russia isn’t even the leader when it comes to crashing currency prices. The Brazilian real has fallen 32% compared to the dollar, primarily because of corruption and a collapsing business infrastructure. Brazil has been referred to as an emerging market, but so far most of what has emerged has been bad.

Closer to home, both the Canadian dollar and Mexican peso are struggling to keep up with the growth of the US dollar. The peso has fallen 19% side by side against the dollar, while Canada’s dollar has fallen 14%. Both of these are due to a slow recovery from the economic meltdown, especially in Mexico where the job numbers remain terrible.

Across Europe, the Euro has been struggling as well. It’s continuing what has been a long downward slide to parity with the US dollar. At one point, each Euro was worth well over $1.60, but in recent months the price of a Euro has dropped dramatically to just over $1.08. This slide in currency value is one of the hardest felt, as the entire continent of Europe struggles to rebound from the crash in 2008. Many of their member states are saddled with debt that will be difficult to pay off, or even make a payment on, in part because of their quickly-dropping currency valuation.

The picture in Asia is a similar one, although slightly more complex. In Japan, unemployment is relatively low and exports are high. The value of their yen has fallen 7% and the economy is generally healthy. In China, the yuan was devalued by just 4% -- the least of any other country’s money -- and markets worldwide were shaken.

Even Australia and New Zealand can’t escape the downward valuation of their nations’ currencies. Australia’s dollar has lost 19% of its value relative to the US dollar, and New Zealand’s dollar has lost 16%. Both countries suffer from higher unemployment than in America, but wages tend to be higher as well.

All of this adds up to it being a boom time for the American dollar. Even though we don’t always feel it at the grocery store, when we import products or travel abroad our dollars go much further. It’s been a good year for overseas travel, and part of the reason why is a strong and steady dollar. Remember, there are two ways for a currency to grow in real value -- it can either grow independently of other currencies, or other currencies can drop like a rock while it stays steady. The latter has been what’s happening with the US dollar over the past year.
Published on Nov 14, 2015
By Aaron Phillips
Aaron Phillips is a financial researcher and journalist based out of Michigan. He regularly writes the IG Daily and IG Weekly columns.

Copyrighted 2016. Content published with author's permission.

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