Why is the US Dollar Falling?

 
 

By Miles Clyne

The US economy has been one of the strongest economies globally, yet in May, their currency peaked relative to the Canadian dollar and many other currencies. Since May the US dollar has fallen about 9% against the Canadian dollar. The chart below shows the past three years of the value of the Canadian dollar relative to the US dollar.

The question on many minds these days is how far will the US dollar fall? If you follow technical analysis, you might believe we are at a critical juncture given past support levels and the current level (circled) between the two currencies. The chart suggests that if the US dollar continues fall, we could see the Canadian dollar at about 83 cents. Don’t make any big bets on this information, but you may want to start buying some US dollars if you are planning a Christmas vacation in Hawaii.

 
Chart Source – Quotestream

Chart Source – Quotestream

 

For years the US talked up the fact that a strong dollar was in their interest. Now love or hate him, it appears Trump’s policy and rhetoric is aggressively trying to take the US dollar in the other direction, and it appears to be working. Check this link for more details. 

Why would Trump want a low US dollar? The same reason most countries prefer a low dollar to their competitors; It makes all their goods less expensive to foreign buyers and investors, it makes it less attractive for US businesses to leave, and more attractive for them to return. It also encourages people to stay in the US vs. travelling outside of their country and more attractive for foreigners to travel to the US.  If you have any doubt about this, just watch the border wait times as the US dollar gets lower.

Regardless of the reasons the US dollar is weaker, one thing is for certain. All markets including currencies tend to move away from uncertainty.  If Trump has done anything, he has raised the level of unpredictability with respect to where the US is going and how it will get there.  Currency in this case may simply be a barometer for measuring people’s fears.