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This article describes a currency traded on the global foreign exchange market. View articles referencing this currency. |
The U.S. dollar (USD) (also known as the Greenback or Buck[1]) is the official currency used in the United States of America. 85% of all currency transactions involve the US dollar. It the world's primary reserve currency and it is pegged to 25 different currencies.
[edit] Companies that benefit from a rising dollar
- Companies that export goods to the United States will benefit from a stronger dollar. This is because a strong dollar makes foreign goods relatively inexpensive and so increase US imports. This applies to companies like Volkswagen and DAIMLERCHRYSLER AG (DCX) and EADS NV which all sell foreign cars and airplanes to the US.
- Companies which use foreign goods extensively as inputs or for retail will also benefit from a rising dollar. This means that companies like Wal-Mart benefit from a stronger dollar as it makes it goods that they buy in China and sell in the U.S. relatively cheap.
[edit] Companies that benefit from a falling dollar
- As the dollar falls, US exports become relatively less expensive; therefore making them more attractive to foreign investors and consumers. This means that companies like Boeing, 3M Company (MMM) and other exporters which sells a substantial portion of its products to foreign customers stand to benefit.
- As the dollar falls, travel to the US becomes less expensive for foreigners and foreign travel becomes more expensive for US residents. The Walt Disney Company which operates two theme parks within the US will benefit from increased foreign tourists. Marriott International (MAR), Hilton Hotels (HLT) Starwood Hotels & Resorts Worldwide (HOT) are all US-based hotels which will face increased foreign tourism caused by a weakening dollar.
- US Steel (X) and Nucor (NUE) compete directly with foreign Steel producers. A weakening dollar helps this companies compete. Harsco (HSC), also operating in the steel industry and in many international markets, benefits greatly from a falling dollar.
- Advanced Medical Optics (EYE), which gets 58% of revenues from outside of the United States, benefits from a falling dollar, which makes its exports more competitive.
[edit] Factors affecting the dollar
[edit] Trade Deficit
A trade deficit occurs when a country imports more than it exports. This leads to a net outflow of a country's currency. Countries on the other side of the transaction will typically sell the importing country's currency on the open market. As supply of the country's currency increases in the global market the currency depreciates. As a net importer, the US has seen its trade deficit grow rapidly over the last decade. In 2006 the US had a record deficit of 765 billion dollars.
[edit] Budget Deficit
When a country's government spends more than it earns from taxes or other sources of revenues, it is forced to borrow from its citizens and/or from foreign entities. As a country's debt load increases, the value of its currency may decrease as result of fears within the international community over its ability to repay the debt. Currently, the US is the world's largest debtor with approximately 9 trillion dollars in debt held by the public (includes intergovernmental and debt owed by States, corporations and individuals). Over half of the debt held by the public is held by foreigners.
[edit] China and Japan
Japan($349B) and China($643B) are two of the largest purchasers of US debt. China in particular has exhibited a voracious appetite for US debt. Its rapidly growing economy is heavily dependent on exports, and the US is one of its largest trading partners. In any given year, the US imports much more from China than it exports to China. As a result there is a net flow of dollars to China. Normally, one might expect China to sell these dollars on the global market, causing the dollar to weaken. Instead China reinvests its dollars in US debt. In doing so, China strengthens the US dollar and limits the appreciation of its own currency. Chinese exports remain cheap to American consumers.
[edit] Monetary Policy & Inflation
Demand for a country's currency is highly dependent on the relative value of holding it, ie. the real, relative return of U.S. government bonds. Fear over higher inflation erodes the real value of bonds, which in turn decreases demand for US dollars. Similarly, tighter monetary policy raises the real interest rate on U.S. Gov. bonds, at which demand for US dollars increases until the relative, risk adjusted return on those bonds is equivalent to the return on bonds for another country.
[edit] Forex Markets [1]
[edit] Most Active Currency Pairs and Trading Hours
The most active USD trading hours are from London's opening market hours (2:00AM ET / 6:00 GMT) and the typical time of release for U.S. Economic news (8:30AM ET/ 12:30 GMT).[1]
| FX Turnover by Currency Pair[2] | ||
| 2004 | 2007 | |
| EUR/USD | 28% | 27% |
| USD/JPY | 17% | 13% |
| GBP/USD | 14% | 12% |
| AUD/USD | 5% | 6% |
| USD/CHF | 4% | 5% |
| USD/CAD | 4% | 4% |
[edit] Factors that affect the U.S Dollar when trading
1. Interest Rates are Very Important for the Dollar. Take a look at how USD/JPY tracks the 3 Month LIBOR rate for the U.S.
2. Many Commodities are Priced in Dollars, so when the dollar rises, commodity prices fall:
3. Dollar Strength or Weakness frequently dominate the currency market on one given day, so know the risks of correlated positions! On March 21st the dollar strengthened against every single G10 currency.
[edit] The U.S. Economy
[edit] Key Facts
The U.S. Economy is comprised of 78% Services, 21% Industrial, and 1% Agriculture. It's largest trading partners are Canada, China, Mexico, Japan, and Germany. Some other key facts about the U.S. Economy:
- Largest Economy in the World
- Number One Importer Global Importer, Top 3 Exporter
- 72% of Economic Activity Comes from Consumer Spending
- 78% of Economy is Service Based
- Most Actively Used Currency
| 2008 GDP Estimate: | USD $14.29 Trillion |
| Population: | 307 Million |
| Interest Rate^ | 0.-0.25% |
| Inflation^^ | -0.70% |
| Trade Balance^^^ | -USD $27.6B |
^As of June 2009 ^^ As of April 2009 ^^^ As of March 2009
[edit] Market Moving Economic Releases
- Fed Interest Rate Decision
- Retail Sales
- Consumer and Producer Prices
- Non-Farm Payrolls
- GDP (Gross Domestic Product)
- Trade Balance
- Consumer Confidence
- Service and Manufacturing ISM
[edit] References
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