Beware the strong US dollar
The strongly rising US Dollar recorded in the six months to December 2014 has continued into the first three months of 2015. Given the strength of the US economy relative to its major trading partners it seems this trend has a good prospect of continuing.
For example, at 30 June 2014 US$1.37 bought €1.00. That figure has since appreciated to US$1.08 buying €1.00, and a move to below parity appears likely in the foreseeable future.
We wrote here that the strongly appreciating Dollar will be a headwind for the large US multinationals and it is little surprise the US market has marched sideways in recent months. Some commentators believe the strong US Dollar will eventually take 0.5 per cent off their GDP (Gross Domestic Product) growth rate.
Conversely, the European markets have enjoyed the tailwind of both the expanded Quantitative Easing policies aimed at raising domestic inflation and the declining value of the Euro. The German DAX Index, The French CAC Index and the Milan 30 Index have put on 23 per cent, 19 per cent and 22 per cent, respectively, since 31 December 2014.
The other winners so far this year must be those countries that are energy and commodity importers. However, Australia, Brazil and Russia are just finding out what it is like to be on the other side of the ledger here. The final set of losers are those countries which have bulked up on US Dollar denominated debt and they include Slovakia, South Africa, Thailand, Uruguay and Hungary.
To learn more about our funds, please click here, or contact me, David Buckland, on 02 8046 5000 or at dbuckland@montinvest.com.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
