Countries Affected by Stronger US Dollar Effects
Investors are gaining confidence in the US economy, which looks good even though global conditions are declining. Gradually, indeed the USD strengthens when linked to other major currencies in the world. This time we will discuss the effect of the strengthening of the US dollar on developing economies such as Brazil, India and China; then oil exporting countries such as Russia and Saudi Arabia, then the European zone and in America itself.
Why is the US dollar so important?
The US dollar is the most important and most trusted currency in the world. The majority of international trade will be carried out in USD, so its value has a direct and significant effect on international trade. Major commodities such as gold and oil are traded in US dollars on international markets. The US dollar is also a reserve for world currencies. In fact the majority of US bank checks are held outside the United States by non-Americans as commonly called euro dollars.
Why does the US Dollar strengthen now?
To find out the reason behind the strengthening of the dollar at the moment, we have to go back to 2009 when the US central bank started the biggest program in the world economic history. The Fed issues money to buy bonds in order to stimulate a near-death economic recession. They managed to add $ 3.5 trillion in the balance sheet. The result is certainly an excess supply of dollars on the international market.
The money pumped by the Fed into the US economy finds a way to the developing market, to promise better growth and higher interest rates from fixed income instruments. The value of the dollar falls against the majority of currencies in the world. In 2014 the Fed finally decided to stop this program so that the dollar rose.
United States of America
The first strong US dollar and the majority will have an impact on their own country. US consumers may feel happy because imported goods will become cheaper and oil prices also come down. A stronger dollar will also slow down inflation which gives the Fed a more broad path to continue the policy of financial expansion.
However, the US dollar strengthened to be like two blades. Just as imported goods become cheaper in America, American-made goods become more expensive for the whole world. This means that some exports will not be competitive in the international market. Though US companies that depend on international markets such as P & G, Apple, and Johnson & Johnson at least 40% of their annual revenues come from international markets.
In Latin America, developing countries like Brazil, Chile and Venezuela will suffer under the strengthening of the US dollar. These countries are commodity exporters. Commodity prices on the international market use the US dollar and the strengthening of the dollar will make commodity prices soar. However oil importing countries may make a difference by saving oil. As a commodity, oil prices also declined with rising dollars.
Oil Exporting Countries and Euro Zone
Russia and the majority of oil exporters in the Middle East including Saudi Arabia, Iraq and Iran are both under pressure from the strengthening dollar. The currency of this oil exporting country also fell against the US dollar. Equals money with an oil exporting country, the majority of countries in the euro zone also have a negative effect from the strengthening of the US dollar, however, with the strengthening of the dollar, this is good for tourists in Europe, the majority of whom are Americans. The weakening of the euro certainly makes tourism in Europe more passionate.