United States dollar (USD) forecast & predictions
United States dollar exchange rate forecasting strategies
The United States is the world’s second largest exporter having exported 1.45 trillion dollars worth of exports in 2014 with an annualised increase of 8.5% over the five years prior.1 Despite a hugely diverse export portfolio, America is also the world’s largest importer, and the balance of payments (i.e. the value of imports versus exports) can influence the USD forecast.
Please keep in mind that OFX does not provide personal advice or specific exchange rate forecasts and predictions; however, here are some general considerations you can use when evaluating forecasts and making your own decisions regarding the best time to transfer your money internationally.
Some key considerations in USD forecasting
When attempting to forecast the movement of the AUD/USD exchange rate, investors may take into account these country-specific factors:
- The globalisation backlash. In this era of peak globalisation, many advanced economies–including the U.S.–have witnessed rising opposition amongst the population in regard to current policies. Any attempt made by politicians to revise current labour and trade agreements could profoundly affect the U.S. dollar forecast. According to Fidelity Investments, “anti-globalisation policies may boost labour costs, spur inflation, and put pressure on profit margins.”2 When considering your international money transfer, keep an eye on upcoming elections and anticipated policy announcements.
- The relative strength of the US economy. The health of U.S.A.’s critical trade partners, including Canada and China, has a strong effect on dollar movements. In recent decades, the dollar collapsed during the sub-prime mortgage housing crisis while subsequent commodity booms bolstered the Aussie and Canadian dollars against the USD. These relationships play a pivotal role in all currency pairs and may be particularly important in AUD/USD forecasts.
- Announcements from the Federal Reserve (the Fed). When trading currencies, the policies of the local reserve banks are always important, because they often address interest rates which can both attract foreign investment and signal concerns over inflation. After the financial crisis of 2008/2009, the Fed had to take considerable measures to prevent a second Great Depression by slashing interest rates to almost zero. The question on everyone’s mind is: is the economy ready for increased interest rates? That’s why upcoming Fed announcements play a critical role in USD forecasts.
- Speculation. Professional currency traders attempting to tap into investor sentiment can play a key role in driving USD movements. A prime example of this came during the 2016 UK referendum on EU membership, known as Brexit, when the pound sterling (GBP) hit a 30-year low against the U.S. dollar. Part of the pound’s decline was based on concerns that it would no longer attract capital flows from abroad.3 Similarly, concerns over China’s economic growth rate may be reflected in the USD and AUD forecasts.
Currency markets can be fickle, and it can be difficult to determine the best time for your overseas money transfer. At OFX, we offer a number of risk management tools to help you make the most of your money. Read the exchange rate forecasting article for a more general discussion about forecasting and macroeconomic factors to consider.