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How Does the Weakening US Dollar Affect Other Countries?

October 16, 2009 04:45 PM
by Denis Cummings
Many countries have had their currency strengthen against the declining U.S. dollar. While many citizens of those countries are pleased to take advantage of cheaper vacations and imports, the strengthened currency will likely restrict economic growth.

Dollar Hits 14-Month Low

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The U.S. dollar hit 14-month low against the euro this week, as it continues to decline against most currencies outside of Asia. Several international leaders have been calling for the dollar to be replaced as the dominant reserve currency due to its continued weakness.

There has also been domestic criticism of the federal government’s economic polices, which have contributed to the dollar’s decline. Sarah Palin and other conservatives “say it's hurting the country’s image as a world power,” reports Reuters.

Analysis: Weak dollar’s effect on the world

Many citizens of countries where currency has remained strong relative to the dollar, such as Australia, Canada and eurozone countries, are celebrating the dollar’s decline by traveling to the U.S. “One of the psychologically most interesting things is we think it gives people license to actually go over the edge to make the decision to come to New York,” remarked George Fertitta, New York City tourism head, to Reuters.

The declining dollar spurred a group of Australians “to indulge the whim of a lifetime,” traveling to New York to attend a Bruce Springsteen concert, describes the Sydney Morning Herald.

However, there are downsides for countries whose currency is soaring against the dollar. While it is “good news for those who drink French champagne, buy imported cars or are planning to travel overseas,” an overly strong dollar will hurt sectors that rely on exports, explains Paul Syvret in the Australian newspaper The Courier-Mail. He identifies agricultural commodities, manufacturing and tourism as sectors that will be affected negatively in Australia.

Tavia Grant in the Canadian paper The Globe and Mail echoes these opinions. “In Canada, a 1-per-cent increase in the value of the Canadian dollar equates to around 25,000 job losses as manufacturing sales slide,” she writes.

Furthermore, the weak U.S. dollar causes global oil prices to rise even as demand remains down. The price of crude oil went over $75 this week for the first time this year, and Goldman Sachs predicts that it will reach $85 by the end of the year.
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