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The record appreciation of the dollar in recent period, and the fact that there are still fundamental premises of this trend to continue, will reflect, most likely, into a gradual increase in fuel prices, given that oil imports are mainly denominated in dollars, says Mihai Nichişoiu, Global Macro Strategist, Tradeville.
“Affected will be the prices of some foods, exotic fruits, coffee, cocoa and some grains, and various electrical and electronic goods imported from countries of Southeast Asia, including China. In the specific case of goods from China, it’s possible that they will become more expensive, unless we’ll see the USD price reductions due to the depreciation of the yuan”, says Nichişoiu.
The Dollar appreciation should manifest including against the single European currency, while the performance of the euro area economies will continue to be mediocre, and interest within the block will remain exceptionally low for an extended period of time. Romania is a notable importer of goods and services from the euro area – so theoretically, their prices should decrease gradually. But the Romanian central bank recently signaled that the RON will remain stable against the euro this year, which means that Romanian consumers will not benefit from the European single currency depreciation against the US dollar.
On the other hand, the IT sector could benefit as a result of this assessment, given that recorded significant exports to the US. Moreover, it could be a long-term opportunity, given that the US economy is in a favorable position, with growth above expectations and decreasing unemployment (at half the highs of the previous decade, noted five years ago) and developments in recent months should be just the beginning of the third most important wave of appreciation of the dollar in history.
„This is important the more so as we go through a rare case in history, with the two most important global economies going in opposite directions. US economy grows along strong structural pathways, such as the energy sector revolution and increasing competitiveness of the local industry, while the Chinese economy slips, also on structural grounds. America is now at the beginning of a positive economic cycle, while China is at the end of a great cycle that lasted over two decades. Along with China, many other emerging economies that were irresistible attractions for investors in recent years slow down, in turn.”
Confident in the performance of the economy, the US central bank – the Federal Reserve – is preparing to announce the first increase in the key interest since 2006, after it stayed flat to zero during the past six years. With favorable economic conditions and competitive interest rates / yields, America will attract more and more investors and speculators alike, in the long term. Financial assets denominated in US dollar will become increasingly attractive and, for the first time in a long time, the money will finally return “home” – in America, Nichişoiu concluded.
