A strengthening U.S. dollar means it can buy more of a foreign currency than before. For example, a strong dollar benefits Americans traveling overseas because $1 buys more. However, this would disadvantage foreign tourists visiting the U.S. because their currency would buy less.
A strong currency is good for people who like to travel abroad, and people who like imported products, because those will be cheaper. However, it can be bad for domestic companies. When currency is weak, that can be really good for jobs, but it's bad for people who want to travel abroad or use imported products.
Who can benefit from a strengthening dollar? – U.S. manufacturers that purchase parts for their production lines from outside the States will likely pay less for these parts based upon the strong dollar. As the cost of manufacturing goes down for U.S. companies, their profit margins will likely go up.
A weaker dollar also makes U.S. goods and services (and assets) relatively less expensive for foreign buyers, which benefits U.S. producers that export goods.
The dollar is strong because the US economy is healthier than those of many other countries and because the Federal Reserve keeps raising interest rates. A strong dollar hurts stocks of US companies that operate internationally and may help stocks of companies that export products to the US.
How a strong dollar hurts your portfolio. A strong dollar crimps income that companies earn abroad, since money brought in in the form of weaker foreign currencies is converted into fewer dollars. The effect on your portfolio is directly related to your international exposure, which could be greater than you think.
Stock indexes tend to rise along with an increase in the value of the U.S. dollar. More important to an investor is the impact of the dollar's rise or fall on the individual stocks they own. Companies that rely on imports thrive when the U.S. dollar is strong.
Disadvantages of a Strong Dollar
Visitors from abroad will find the prices of goods and services in America more expensive with a stronger dollar.
A falling dollar diminishes its purchasing power internationally, and that eventually translates to the consumer level. For example, a weak dollar increases the cost to import oil, causing oil prices to rise. This means a dollar buys less gas and that pinches many consumers.
The high U.S. dollar value bumps up the cost of interest payments for foreign entities and citizens with U.S.-based loans. And, while a stronger dollar is slowing the rate of inflation in the U.S., it is increasing the rate of inflation in much of the rest of the world. The global economy is weakening, as a result.
The Kuwaiti Dinar (KWD) is the most valuable currency in the world. In Kuwait, the Indian ex-pat group has a strong presence, making the KWD to INR rate the most popular Kuwait Dinar exchange rate. The Kuwaiti dinar continues to remain the highest currency in the world, owing to Kuwait's economic stability.
It depends on when a currency is strong
The appreciation in the currency leads to a reduction in inflationary pressure, but high growth is maintained. If you have a recession, a strong currency can make the recession deeper. In a recession, a strong currency will lead to a further fall in domestic demand.
The strong dollar feeds into inflation pressures abroad.
When a country's currency weakens against the dollar, the price of imports from the United States rises, putting pressure on prices. On average, the pass-through of a 10 percent dollar appreciation into inflation abroad is 1 percent.
Currency appreciation benefits consumers, as it makes foreign goods cheaper, but it harms national producers who face greater competition with foreign producers. A depreciation has the opposite effect.
Iranian Rial (IRR)
Presently, 1 Indian Rupee equals 515.22 IRR, making the Iranian Rial the world's least valuable currency. This depreciation can be attributed to factors such as political unrest in the country, the Iran-Iraq war, and the nuclear programme.
In addition, uncertainty around international trade, geopolitical tensions, the US debt ceiling and the US banking collapse have caused investors to move away from riskier assets like the AUD. This combination of factors has caused the Australian dollar to be weaker than its peers in recent months.
A weaker dollar, however, can be good for exporters, making their products relatively less expensive for buyers abroad. Investors can also try to profit from a falling dollar by owning foreign-currency ETFs or investing in U.S. exporting companies.
When the Australian dollar depreciates, or loses value, less foreign currency is required to purchase a given amount of Australian dollars. This makes Australian produced goods and services cheaper than before when compared with goods and services produced overseas.
Expensive Exports
A higher Aussie dollar can make exports more expensive and can drive overseas buyers to import from other countries with a lower exchange rate. Iron ore and coal are our top two exports and a high exchange would negatively impact these industries and our economy.
"As interest rates in Europe rise faster than in the US, it benefits the euro and attracts capital inflows from elsewhere into the eurozone," Carsten Brzeski, chief economist for Germany and Austria at ING, told DW. The euro has also gained from a general weakness in the dollar.
A weak currency may help a country's exports gain market share when its goods are less expensive compared to goods priced in stronger currencies. The increase in sales may boost economic growth and jobs while increasing profits for companies conducting business in foreign markets.
During a high inflation period, the strong dollar also mitigates inflationary pressures through lower import prices and lower overall demand. In addition, if the value of the dollar is being driven by capital inflows, then U.S. interest rates would be higher in the absence of those capital flows.
When the value of a currency changes, prices for goods traded using that currency can be affected. A currency appreciation (when the value increases over time) results in a lower effective price for imported goods; currency depreciation (when the value decreases over time) translates to higher import prices.
The Negative Effects From a Weak Dollar
Not only does a weaker dollar lead to higher commodity prices, it also drives up the prices of imported goods, which adds to pressures on consumer spending and could lead to higher wage demands.