The sparkle has finally started to come out of the American dollar.
After being the unassailable haven for most of the world’s investors for several years, its value has started to decline relative to other major currencies, such as the Euro and the Japanese yen, and minor currencies such as Indonesia’s rupiah.
The greenback had gained about 30 percent since 1995 against other major currencies as the U.S. economy boomed while others drifted.
But since early July, it is down about five percent.
For agricultural commodities this is good news.
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The high U.S. dollar made its products expensive to foreign buyers. Customers who had seen their currencies plunge started to turn to Brazil and Argentina for their soybean and corn needs.
Because American analysts and traders tend to look mostly at
United States trade and supply data when establishing grain futures prices, the lack of U.S. exports helped to drive down commodity prices, hurting farmers.
The U.S. farm lobby didn’t complain much about the dollar’s strength, but when the American economy slowed this year, cutting into domestic demand, automakers and other manufacturers began to raise a stink. General Motors’ chief financial officer said the strong dollar was “destroying the manufacturing capability of this country.”
But the administration of president George W. Bush had little interest in manipulating the dollar’s value. It now looks like the market will settle the matter.
Last week, the International Monetary Fund issued a report on the American economy that drew attention to the U.S. deficit in trade and services. This current account deficit, which stands at about $450 billion, was unsustainable in the context of the weaker U.S. economy, it said.
The dollar “might be at risk for a sharp depreciation.”
This warning seems overblown. Even in its current lethargy, the American economy is certainly more dynamic and full of promise than Japan’s or Europe’s. However, a readjustment is in order and the market seems to be providing it.
A lower dollar will make U.S. grains and oilseeds more affordable. Also, given that Canada, Australia and the European Union have all had production problems, the U.S. might become more the supplier of choice. This should help drive down U.S. year-end stocks and push up farm commodity prices.
