USD Outlook

October 20, 2023No Comments

USD Outlook: A Long-Term Analysis of the US Dollar

Hello and welcome once again to the Smart Money Dumb Money Show. And I’m your host, as usual, Keith Richards. I’m President and Chief Portfolio Manager of ValueTrend Wealth Management. And today we’ve got the shortest video I’ve done in quite some time. In fact, it might be the shortest video I’ve ever done because we’ve really only got one subject, and that subject is the US dollar. I want to talk about where I think the US dollar is heading from a very macro, long-term perspective. And then I’m going to talk about the classic hedge Gold, but I also want to encourage those who hold US securities inside, for example, a Canadian Dollar account to have some sort of awareness of the probability of a weakening US Dollar. So I’m going to share the screen and I just want to show you a quick PowerPoint that I’ve put together.

As I said, it’s two slides. It’s not very long as far as the look we’re going to look at here, but I am always trying to give you a takeaway. I’m always trying to give you something that you can use. And as short as this video may be, this is useful information and you should keep this in your brain as you’re investing.

USD Dollar Index

US Dollar Index

So, let’s start by looking at the US Dollar. So this is the long-term view of the US Dollar, and it goes back to 1969. You can see this is the US dollar as compared to a basket of currencies, but currencies that represent the mass of currencies versus the US dollar. So global currencies against the US Dollar. That would include the Canadian Loonie, but it would also include the Euro, the Japanese Yen and many others. And you can see this index, cuz that’s all it really is, tends to peak out somewhere around 120.

Now, back in 1985, it did peak higher around 164, but generally 120-121. And here in September of ‘22, we saw around one 118 I think it was. So, the point being is, that that would be considered probably a high point or technical resistance for the US Dollar. And what we’re seeing is a hit of that level and it is beginning to decline as it did in most cases when it reached 120 or higher. So my belief is that we’re going to see a general weakening period after a period of strength, which we’ve seen really since after the 2008 crash, we saw a growing resumption in the enthusiasm over the US Dollar, and now we may see that enthusiasm wane over the next couple of years.

USD Declines. Gold Outperforms

Gold is a hedge against the US Dollar declining

Well, that brings us to our next slide, which is Gold. Now I’ve talked about this lots and lots and lots of times. Gold is a hedge against the US Dollar declining. You guys probably know that. You can see here Gold is the black line and the US Dollar is the red line. You can see that they do move in opposite directions a lot of the time. In fact, the bottom line here is the comparative relative strength of Gold against the Dollar. And you’ll generally see when the Dollar’s falling, Gold outperforms.

It doesn’t mean that Gold goes up, but it outperforms, and that’s actually what’s happening right now. You can see the black line, which is Gold, has more or less been flat, but the US Dollar has been declining. Okay, so let’s take a look at the correlation index. And you guys have heard me talk about this before. When it goes below the zero line, it means that the two are negatively correlated. They’re moving in opposite directions. And you can see that lately, the US Dollar is moving down, Gold is moving up. So, what I want to suggest is that the US Dollar, if we look at it historically, again going back to this chart, is likely to decline over the coming years. It could move up over the next six months after you watch this video. But the point is, it’s kind of a long-term macrocycle that I might suggest is going to play out over the coming months or years.

And so we should, as Canadian investors, if we hold a US Dollar account with US securities, we might want to buy some hedge such as Gold to offset the US Dollar’s decline. If we are a Canadian investor holding our US securities inside the Canadian account, then we might want to look for alternatives of similar securities that could be bought on the Canadian side or in US Dollar hedged type of vehicle such as an ETF. Now, the other thing you can do is add Gold or Gold producers, and Canada has lots of them, as you probably know.


So, these are just some thoughts I had for you to be aware of in the outlook for the US Dollar because it’s going to affect our portfolios one way or the other. Because the US is still the biggest market in the world. We’re still going to have some of their securities, and so we need to be aware of this and take action where we can. Thanks for watching and we’ll see you next week.


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