Tracking the dollar downward

One thing I’m not reading much about in policy and commodity analysis right now is the overall weakness of the U.S. dollar.

In one recent tracking of a 365-day period, the dollar had fallen almost 13% against the Euro, which included a 4.28% drop in the last 30 days. In the same 365 days, it had fallen 3% against the Japanese yen and 2.6% against China’s yuan. Against a broad selection of currencies, the greenback was off by just over 5.5% in that one-year time frame.

Implications for farmers?

A weakened dollar makes what you grow a little cheaper in the export market.

But, you also could see an uptick in what it costs to buy foreign-made goods and inputs. The shift against the Euro might affect certain lines of European-made equipment and ag chemicals, for example. Anything made from imported oil will likely be affected.

On a wider basis, a cheaper dollar should lessen the trade deficit this country has with most of our main suppliers, economists point out.

Compared to other currencies, the dollar has actually been creeping downward since March 2002, according to weighted averages calculated by the U.S. Federal Reserve Board.

All kinds of factors are at play, according to a recent report in the Christian Science Monitor, and none of them seem to point toward an immediate reversal in the dollar’s buying power. As the Monitor’s Mark Trumbull noted:

European economies are strengthening at the same time U.S. bond yields have weakened due to concerns about our economy. Inflation is a lingering concern, as well, in terms of the U.S. economy.

Perception of the United State’s as a military power influences the currency’s strength, and being bogged down now in Iraq is a liability.

China, which is sitting on a trillion dollars in reserves, has indicated it will put less of its assets into U.S. dollars as it has in the past.

At some point, the trade balance will have to shift downward. As Trumbull pointed out, the U.S. is borrowing $2 billion a day to pay for imports, and our trade deficit now is equivalent to about 7% of the gross domestic product, up from a scant 1.7% just 10 years ago.