What Gets Stronger if the Dollar Weakens?

The prospects of a slower rise in interest rates and questions about whether or not the Trump economic agenda will ever come to pass have taken the dollar down. We are wondering what gets stronger if the dollar weakens. Bloomberg looks at assets that would benefit from a weaker dollar.

The U.S. currency appears to be entrenched in a new range amid prospects of delayed policy from Washington and a slower pace of interest-rate hikes.

Should the greenback face continued weakness, these assets could see a bid.

Precious Metals

When the dollar falls gold and other precious metals are seen as safe havens. Gold bugs, who never trust fiat currencies, will feel justified.

Crude Oil

Oil and other commodities are commonly priced in dollars. When the value of the dollar in relation to other currencies falls, the value of oil in dollars goes up. US shale oil producers will be happy.

U.S. Exporters

US companies that sell their products offshore have to worry constantly about price in the local currency. A weaker dollar helps folks like Apple, Caterpillar, Procter and Gamble as well as 3M.

Corporate Credit

Credit markets also benefit from a weak dollar that stimulates foreign investments. As the largest holder of U.S. Treasuries, Japan’s appetite could pick up should the yen strengthen against the dollar.

Emerging Markets

A stable greenback would help China’s central bank keep the yuan stable, protect the economy from looming capital outflows, and, as such, boost market sentiment toward emerging markets.

Debt serving for those who have taken out loans denominated in dollars is much easier when the greenback falls in value.

Not Good for the Stock Market

The Economic Times explains why Trump’s weak-dollar policy threatens stock markets.

Donald Trump’s support for a weaker dollar has the potential to torpedo a key tax-reform proposal that has served as one of the main catalysts of the US stock market rally .

The so-called border-adjustment tax favored by Republicans in the House of Representatives is basically a charge on imports into the US that was supposed to be partly offset by a stronger greenback. The absence of a stronger dollar to serve as a counterbalance against the likely resulting inflationary pressure from the tariff seems to make the tax a less of a possibility.

Whether Trump understands this or not the fact is that a strong dollar would be an integral part of this plan to decrease imports and increase production in the USA. As Trump’s promises of tax cuts, boarder taxes, corporate cash repatriation, infrastructure spending unravel the market has reacted and moved downward. A slower economy allows the Fed to hold off on raising interest rates and that in turn drives the dollar down.

Weak Dollar = Weak President

The Washington Post quotes a former Trump economic advisor who says a weak dollar is a weak president.

Historically, Moore argued, successful presidents have supervised the economy when the dollar was strong, and the currency has been weak while unsuccessful presidents were in office. For instance, Presidents Nixon, Ford and Carter wrestled with a weak dollar throughout their terms, while the greenback recorded gains under Presidents Reagan and Clinton.

A strong dollar indicates trust in the American economy and a weak one indicates weakness. No one invests in weakness.