It has long been accepted that the United States Dollar holds the title as the most ‘powerful’ currency in the world, yet to most people it seems far from this, with a ‘physical’ value that is weaker than several other currencies including the Great British Pound and even the Euro. So in the wake of the recent interest rise from the Federal Reserve on the 16th December, we have decided to take a look at just why the currency is deemed to be so important and just why a changing Dollar price could be so influential to the rest of the world.
Perhaps the easiest way to explain the value of the Dollar as a currency is this: The worlds’ reserve currency is held in Dollars, which means that it is widely used as a form of international business and commerce and is closely linked to the price of both Crude Oil and also Commodities, including Gold, Platinum and Silver. This means that when the price of the Dollar changes, the price of Oil and Commodities is likely to change in its’ wake. This is all thanks to a deal between Saudi Arabia and the US back in 1973 that purported that USD was the exclusive currency for an actor to buy Oil with from the country, and in 1975, OPEC decided to follow suit and adopt the currency for itself. This has often led to an artificial demand for Dollars as all countries are obligated to buy their oil in the currency, despite protestations.
Most market news sites have been reporting that the US has been stockpiling a huge surplus of oil. Furthermore the United States has already released their intentions to increase interest rates multiple times in 2016. It seems inevitable that the dollar will continue its’ turbulent ride into the New Year. But having explained that it is a currency so closely linked to Globally-recognized investments and commodities, it seems certain that it will still retain its’ title as the ‘strongest’ currency, even if it is more in stature than in account.
So what does this mean for traders who are looking to make their mark trading on currencies? With the Canadian and Australian dollars both falling to all-time lows and the Kuwaiti and Iraqi Dinar being capitulated by falling Oil prices, it might be best to choose some safer bets as 2015 plays out its’ final weeks. Get ready for a volatile and unpredictable year ahead of us. 2016 may be a crazy year. Who knows if the Fed will follow through with its’ rate rises to their predicted 1.5%. Or whether the value of oil finally begins to turn around and recover ground towards the highs of $110 that it hit back in 2014. The only thing that can be said for certain is that there is plenty of money to be made for a trader who’s smart. A smart trader will watch the markets closely for the optimum time to cash in and cash out. Good luck in 2016! It should be a year of opportunity!