Dollar Strength: "It's All Relative"

03/22/2017 2:50 am EST

Focus: CURRENCIES

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

The dollar is still #1 on the international currency hit parade. And if interest rates rise further, it’ll likely stay in first position, at least for the time being, explains Mary Anne and Pamela Aden, currency experts and editors of The Aden Forecast.

For now, we continue to recommend keeping your cash in U.S. dollars. How long will this last? It’s hard to tell, but if the dollar index declines clearly below 97, it’ll signal much lower prices ahead. And with the dollar’s leading indicator on the decline, this could happen sooner than expected.

What could push the dollar lower? Trump is one big factor. Traders are still uncertain about Trump’s tax and economic policies. They want more details and they’re becoming a little more cautious.

In addition, with Trump calling China, “the grand champions of currency manipulation,” it also raises some concerns about a possible trade war.

More important, on several occasions, Trump has indicated he wants a weaker U.S. dollar. That’s mainly because of the economic and trade advantages.

For now, all of the currencies are technically bearish, below their 65-week moving averages. In other words, the major trends are down, signaling they could decline further.

The only exception is the Australian dollar. It’s been firming up, thanks to higher base metals prices. Since Australia is a big resource and metals producer, its economy benefits when prices rise, and so does the Australian dollar.

The same generally applies to the Canadian dollar. These two currencies are known as the commodity currencies and when commodities move higher, it generally provides a boost to these markets. Currently, however, with the oil price under pressure, it’s keeping a lid on the Canadian dollar as well.

The British pound is in a league of its own. The main force driving its outlook is Brexit. The market is not in favor of Brexit, which is why the British pound has declined so steeply.

The Japanese yen is somewhat similar. The yen has pretty much received the brunt of the U.S. dollar’s strength. This isn’t surprising considering Japan has been battling deflation for decades and it has the biggest debt to GDP in the world at 230%. Like the others, the Chinese Yuan is bearish too.

So the bottom line is that most of the major world countries have problems. The U.S. does too, but the general perception is that its problems aren’t as serious as those in some of these other countries.

It’s all relative. The U.S. dollar is the best of the bunch and that’s why the dollar has maintained its strength in recent years.

But if this perception begins to change, then the currency markets will likely change too and it could be a whole new ballgame. For now, however, the dollar remains in the driver’s seat and that’s where you want to be — in U.S. dollars.

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