Dollar strength may be over extended. Dollar action after the Fed announcement last week seemed to indicate that investors (speculators) were ready and willing to sell the greenback. Looking at the chart, one can see a potential peak in the Dollar Index earlier this month. And, our macro economic partner’s indicators are a short term extended level for the dollar. The effects of the strong currency (to date) have been lower oil prices and some tight money conditions in some international economies.
This is a very strong currency in the largest economy in the world. The US is less reliant than any other country on exports. So, as a consumption based (closed) economy, we are not as reliant on the competitiveness of our “products” on the global market. Therefore, we are not as exposed to the risks and negative problems like falling revenue that can accompany a strong currency.
In fact, a strong currency in the largest economy can be a global stimulus. With more buying power and lower oil prices, our non-oil consumption continues to exhibit strong growth. As such, global trade (global export growth) continues to improve. With this trade, dollars get spread across the globe and help economic momentum.
We see the benefits here in German Machinery Orders and German Exports.
Based on this thesis of a strong dollar, lower commodity prices and improving global trade, here are some countries that are recommended for over-weight. These countries would stand to benefit should this scenario continue to play out.
As always, please feel free to contact me with any questions or concerns.
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For information on Alhambra Investment Partners’ money management services and global portfolio approach, Douglas R. Terry, CFA is reachable at: dterry@4kb.d43.myftpupload.com
This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product.
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