The Only Dollar Story

You thought the dollar was going to tank this year, didn't you? Admit it. We're not going to name any names or single you out, but you know who you are. Dollar-doomsdayers and greenback-naysayers have been unusually mum so far this year, despite their fire and brimstone predictions at 2007's outset.

Dollar worries generally stem from a two-pronged pitchfork of disharmonic worry. First, the inane belief the US is in dire financial trouble. Whether it's trade deficits, current account deficits, or whatever, the US is continually said to be in peril of collapsing in on itself. (These fears are sheer fabrications. See our past commentary, "Trade Deficits Pop Quiz" for more.)

Second, a number of weird theories abound on dollar weakness and the so-called Asian carry trade. (Again, hogwash. See our past commentary, "Carry Trade Tirade" for more.)

Here's how things are playing out with half 2007 behind us:

Name 2007 (YTD)
Canadian Dollar 11.2%
Australian Dollar 9.0%
Norwegian Krone 7.4%
Euro 3.2%
UK Pound Sterling 2.9%
Swedish Krona 1.6%
Swiss Franc 0.2%
Japanese Yen -3.5%

The dollar is downright flattish this year against the "major" currencies. That's even worse for the financial press than being strong because a flat dollar is a boring dollar—so we get no reporting on it whatsoever. It's a non-event, non-starter, and non-newsworthy.

But the interesting bit that most seem to miss is the US dollar is quite weak versus the Canadian dollar. Most folks focus on the US dollar versus other major currencies. Which is fine but really isn't all that meaningful unless you're thinking of taking a summer vacation to Europe. What really matters is how the dollar performs relative to countries we do most of our trade with. Those include Canada and Mexico among others.

The Canadian dollar has been strong to the greenback in 2007, which is a bad thing for the US because it makes imported oil (we get a lot of our oil from Canada) more expensive. Yet, strangely, we seldom hear of it from the press. (Incidentally, it doesn't matter either way—high energy prices haven't stalled the global economy, or stocks, in the last several years. Generally, high energy prices mean high demand…a sign of a strong economy.)

A little perspective is always in order regarding these sordid currency matters. Looking at currency movements over a single year is far too myopic. Go back to 2005, where the dollar performed fine. In fact, 2005 and 2006 were almost mirror images of each other in dollar terms. And guess what, stocks and the economy went up both years.

In the end, dollar movements don't move stocks and that's all that matters for MarketMinder readers. It's strange the only dollar story that matters this year (its weakness to the Canadian dollar) is going largely unreported. We have to say, we sort of miss you doomsday-dollar-droners. We feel for you: The dollar is doing fine, the economy is growing, and stocks are up…it's been a tough year all around. Maybe this isn't panning out to be the dollar collapse you hoped for, but there's always Canada…that's something, isn't it?