US dollar (USD) Outlook
Currency markets can be volatile and exchange rates are determined by a number of both micro and macroeconomic factors. Before making your international money wire, it’s wise to consider some of the factors that may influence the exchange rate.
The United States is the world’s second largest exporter having exported 1.45 trillion dollars worth of exports in 2014 with an annualized 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 USD valuations.
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.
Top Factors in USD Valuations
When attempting to forecast the movement of the USD exchange rate, investors may take into account these country-specific factors:
The globalization backlash. In this era of peak globalization, many advanced economies--including the US--have witnessed rising opposition amongst the population in regard to current policies. Any attempt made by politicians to revise current labor and trade agreements could profoundly affect the US dollar value. Anti-globalization policies could increase labor costs, spur inflation, and affect tariffs and duties, all of which can hurt 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 critical trade partners to the U.S., 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 exchange pairs.
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.3 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 US dollar. Part of the pound’s decline was based on concerns that it would no longer attract capital flows from abroad.4 Similarly, concerns over China’s economic growth rate may be reflected in the USD and AUD forecasts.
What the U.S. Dollar Outlook Means for Your Money
If you’re assessing the U.S. dollar outlook in order to make a strategic overseas money transfer, you should know that big banks charge big margins on foreign exchange transactions, often up to 5%. Instead, register with OFX and lock in a great exchange rate. To find out why the experts trust OFX to complete their international money transfers, call us for more information.
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For a more general discussion about exchange rate forecasting and macroeconomic factors to consider, check out this article.
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This communication has been prepared by sales personnel of OFX or its affiliates. Sales personnel are not research analysts and are not accredited, licensed or otherwise qualified to provide advice on market conditions. This commentary is intended for informational purposes only and does not constitute substantive “research” as that term is defined by applicable regulations. Any opinions, views or analysis expressed herein are subject to change without notice and may differ or be contrary to the opinions of other OFX personnel. OFX is an online foreign currency exchange money transfer service and does not offer any form of margin or speculative trading facilities; and neither it nor its employees are in the business of providing, and do not provide advice to consumers or investors. The information contained herein does not take into account the financial situation or objectives of any particular person and should not be construed as business or investment advice or investment recommendations. Recipients of this communication should exercise independent judgment and obtain advice from their legal, tax or financial advisors.
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