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US dollar strength has been making pips for dollar bulls left and right, but is a strong USD good or bad for the US economy? Also, will the Fed finally hike rates?
If you’re a frequent online shopper, then you’d probably know that a stronger local currency is usually good news for consumers. For example, an electronic nasal hair trimmer imported straight from Japan priced at 10,000 yen, would cost fewer US dollars when USD/JPY is trading at 120 comparing to the exchange rate of 80.
Just like you, any company that imports stuff from outside of the US into the US is now cracking walnuts with their tails. Ok, that was a Persian language expression translated directly into English which simply means, they are super excited. Now can a strong USD ever be bad thing? The answer is YES. As I’ve mentioned in Invest Diva’s Trading course, a strong local currency can make the country’s exports more expensive in other countries. For example a Sikorsky helicopter made in Connecticut would would cost more for an Aussie celebrity in Melbourn when AUD/USD is trading at 0.76 versus an exchange rate of 0.95.
So what’s gonna happen to Ms. USA moving forward? At the last FOMC meeting, the big focus was the inclusion or removal of the “patience in beginning to normalize” monetary policy followed up with a bunch of mixed signals. But overall, currency traders believe that the Fed rate hike is coming, with economic data continuing to look bright for now, it’s likely to be happy days for bullish traders of Ms. USA for the foreseeable future.
The next big question is whether the strong US dollar will slow the U.S. recovery. Do you think it will influence the Fed to see low rates as appropriate for a longer period of time? Come on over to our social media and let me know.
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