Tag Archives: deflation

Is Dollar dull again?

Soaring Gold & Silver along with the escalating US-China Trade war may lead to Dollar fade its value. A weaken Dollar & surge in the inflow of capital towards India can help appreciate the value of Rupee.

So, what exactly does Strengthen Rupee or Weaken Dollar mean for the Economy & for you as a Consumer? Let us discuss it Today.

Strong Rupee Impact –

  • Cost of Production Rises as raw materials become expensive.
  • Exports become costlier which may mean Business like textiles, IT etc may lose to its competitors. IT sector earnings may decline, as most of them serves the clients abroad.
  • Imports are cheaper. The appreciation may help in reducing prices of imported consumer goods like your iPhone, Computer or TV etc.
  • Strong rupee may impact the job creation and the overall growth.
  • The stock market gains from foreign inflows, funds keep coming in, and the additional liquidity keeps stock prices high.
  • Also Foreign investors, who can borrow cheap abroad, for example ~1% in Japan, & invest that money in Indian bond market, with yields ~7%, can gain from a strong rupee.
  • Strong Rupee helps Government manage inflation on the lower side and the fiscal deficit.

Weak Dollar Impact –

  • A week Dollar may mean higher prices of commodities like Oil, Iron, Copper etc as they make up for the downfall in dollar.
  • Rising prices of commodities increases the cost for producers which ultimately pushes the prices of goods further downstream like Food, Gas etc, directly feeding into Inflation and off-course making a hole in your wallet.
  • Prices of Imported goods rise and foreign Travelers may need to scale back on Vacations. Topmost imported goods in US are (Consumers watch-out)-
    • Electrical Machinery (including computers and hardware)
    • Vehicles and Automobiles
    • Pharmaceuticals
    • Medical equipment and supplies
    • Furniture, lighting, and bedding
    • Plastics and plastic goods
    • Oil and petroleum products
    • Gems and precious metals
  • Some Business are more likely to take hit than others like Luxury products. When consumers tighten their belts, the first industries to take hit are those manufacturing luxury items and nonessential products.
  • Fuel prices may surge, when the dollar weakens the price of gasoline increase because the nation depends at least in part on imported oil.
  • Exports are more competitive in the global market gaining market shares and at times saving U.S. jobs in the process.
  • Multinational Companies and the Shareholders may gain from the Weakening Dollar.

Lastly let’s look at the Factors that help Influence a Currency Strength –

  • Policies Anti-Inflationary monetary policies and Fiscal discipline helps a Strong Currency by keeping debt and inflation in check.
  • Stability- A well-established, strong & stable government boosts the confidence of Investors, which in turns promote the Currency.
  • Interest Rates- Investors seeking a higher rate of returns are attracted by higher interest rates, and their Investments help promote a Country’s Currency.
  • Geo-political factors- Apart from the factors mentioned above, other external factors like Trade wars, trusted partnerships & support from other Nations can also impact a Nation Currency.

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