By John Paul Valdez
This is another counter intuitive lesson and favorite of “It’s Your Nickel.” In addition to ourselves, and the nickel we hold in our hands, others have nickels too. They have Yen and Euros and all kinds of other nickels. The currency exchange rate of the $US Dollar affects our economy and the ability of foreigners to buy our goods all the time.
Right now, the US dollar is at an 8.5 month LOW against the Euro and other currencies because of our inability to prove our creditworthiness to the world. In other words, our $US Dollar is much lower than the period prior to that. How could that possibly be good news? Don’t we want a stronger dollar? Not really.
When the $US dollar is weaker, foreigners can afford to buy American goods and services with LESS of their money. America becomes a bargain to travel to for example. Hotel rooms are cheaper for them, as well as airplane tickets or anything denominated in dollars.
They can order goods online that translate into fewer units of their home currency, and save on purchases of almost anything, as long as that item is being sold to them based in $US.
When we see periods of a weaker dollar, we tend to see stronger upticks in economies that depend on tourism. That is the case here. We will see an increase in hotel reservations and longer stays by persons who may have postponed winter vacations just a few weeks ago because of the government shut down.
This should help us recover a bit through the holiday season here locally. Weaker $US Dollar, stronger purchasing power for foreigners…. And a big win for tourist towns like ours.
So far in this article, I have concentrated on a personal pocketbook. Now imagine if you are a foreign company looking to purchase $US based assets in real estate or companies (stocks or equity). If you spend a $US billion dollars on a property right now you might save as much as $US 100 million if you are moving from a currency that has shown a ten percent fluctuation over this period. On a smaller scale, a $US million dollar home would be a 900K home, and so on, and so forth.
One can easily see why the smart money does indeed look at currency fluctuations. It makes a big difference. Remember, “It’s Your Nickel.”