Weekend Edition: The Dollar Will Continue to Slide, Come What May
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Why is the US dollar weakening and what does a 10% drop mean for the Aussie?
Well the US dollar's been s getting steadily weaker this year with the odd unsustained bounce back. So how much lower will it go? Will trade deals and less uncertainty see it climb back? Or has the damage been done? Is there less interest now in US assets seen as more risky than before? And isn't this what Donald Trump wanted? A weaker US dollar? That's this week. The morning call from
NAB with Phil Dobby.
The weekend edition. So through all of the Trump tariff shenanigans, the US dollar has been becoming increasingly less popular. But of course, this is what Donald Trump wants, isn't it? I mean, he doesn't want it to be less popular, but he still wants he still wants it to be the reserve currency. But he wants it weaker so US imports are more expensive and exports cheaper to help reduce its trade deficit. Uh get year to date the dollar on the DXY has fallen. Fallen over eight and a half percent. So does it go further from here? Well, let's bring in Nab's currency whiz, morning call regular, and Nab's head of FX strategy, so he knows what he's talking about. Uh Ray Hatchell joins me. So presumably uh it will, if Donald Trump wants to get closer to that balanced trade to bring down his deficit, he will at least want to see the US dollar going even lower, won't he?
So no, absolutely. I mean it you know, you could uh you know, perhaps he is a genius after all. And uh ref just whine back, you know, a month or so there was all this talk about a so called Maha Lago accord akin to the uh The Plaza Accord of nineteen eighty five, which was an international agreement by the G seven countries, um, to take actions that would weaken the US dollar. And uh that's kinda died a little bit of a death and people have sort of inspected the entrails of some of the policy proposals contained within a a paper produced by Stephen Mirron, who's uh become one of Trump's advisers. But
Well the extreme the extreme element of that was replacing uh current bonds with one hundred year bonds that weren't didn't have any coupon value associated with it. So I mean That's right.
That's right, which uh which was actually akin to uh imposing a tax on foreign investors coming into the US, which I would say is a very small stone's throw from capital controls. And uh uh the circumstances under which that uh saw the light of day, I would guarantee, uh, would be uh a catalyst for probably a US dollar crisis, much as um deciding to uh to fire J Powell if that were. possible uh which I don't think it will prove to be the case.
Let's tr uh let's talk about that then. But has it the the fact it's been going lower, has it been engineered as going lower? Is it a lack of confidence? Is it less money flowing in, less investment in US treasuries, for example? What is it that's actually driving it so low, so quickly?
Well, it's been engineered um to the extent that various Trump policies, um, or the c the chaos or the uncertainty surrounding the longevity of some of the policies that have been announced in the last couple of months, um, have actually caused the US economy to hit the buffers. So whether it's a sudden stop or not, uh we'll probably find out next week when the growth figures With the first quarter are released, and current estimates are that that will be something close to zero. So the uncertainty that's been unleashed, particularly by the tariff announcements and what that's done to consumer confidence, and more importantly, what it's done to business confidence.
How did the Plaza Accord and past US policy shape today’s dollar decline?
Daily morning calls, you know, we talk about this notion of US exceptionalism or economic exceptionalism, and essentially saying, look, we can explain a lot of the strength that we've seen in the US dollar, the outperformance of the uh US equity markets by the undeniable strength of the US economy for much of the post-COVID era relative to most of the rest of the industrial world. Now, what we've seen just in the last couple of months is that exceptionalism um you know disappearing rapidly into the rear view mirror um and lo and behold the um you know the US dollar has has started to to weaken as economic surprises have surprised to the downside in the US and you know have been not nearly as bleak in in other parts of the world.
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Chapters
8 chapters
1
Why is the US dollar weakening and what does a 10% drop mean for the Aussie?
0:01–3:31
2
How did the Plaza Accord and past US policy shape today’s dollar decline?
3:31–8:50
3
What role do Trump’s tariffs and trade‑deal hopes play in the dollar’s slide?
8:50–13:41
4
Why are global capital flows moving away from US assets and into Europe and Asia?
13:41–18:01
5
How could a US recession or Fed policy shift accelerate the dollar’s fall?
18:01–22:15
6
What impact will a weaker dollar have on the Australian dollar and export competitiveness?
22:15–26:00
7
What are the possible scenarios for the dollar’s future – from modest slide to major crisis?
26:00–29:59
8
When might the dollar recover, and how should investors position themselves now?
29:59–33:05