And considering it’s highly unlikely that the major manufacturers in Asia will be replaced by domestic completion, it is logical for investors to expect this dynamic to persist well into the future. That diversification could serve Ford well, and not just because of a weak-dollar environment. Caterpillar (CAT, $134.92) is an international heavy machinery firm that recorded $53.8 billion in total revenue for 2019, with $25.8 billion coming from North America.
Major drugmaker Pfizer (PFE, $38.45) derives 46% of its revenues from the U.S. vs. other geographies, according to financial statements for fiscal year 2019. Perhaps unsurprisingly, semiconductor and microchip giant Intel (INTC, $48.03) is a supplier mainly to electronics firms across Asia rather than a big provider of hardware to the U.S. Based on 2019 financials, only about $15.6 billion of its $72.0 billion in total revenue came from the U.S.
Businesses that export and do most of their business overseas become disadvantaged by a strong dollar because they tend to see reduced revenues from the areas the dollar is strong against. But generally, it is good for the U.S. economy to have a strong dollar. The dollar strengthens when interest rates rise, and international investors view it as a safe haven for maintaining and increasing value during turbulent economic times. In general, the strength and value of a currency depends on the demand for that currency.
The government devalued the currency by 600% in 2020 and renamed it the Toman. McDonald’s Corp. (MCD) and Philip Morris International Inc. (PM) are well-known examples of U.S. companies with a large percentage of sales occurring overseas. While some of these companies use derivatives to hedge their currency exposures, not all do, and those that do hedge may only do so in part. Goods produced abroad and imported to the United States will be cheaper if the manufacturer’s currency falls in value compared to the dollar. Luxury cars from Europe, such as Audi, Mercedes, BMW, Porsche, and Ferrari, would all fall in dollar price. Expatriates, or U.S. citizens living and working overseas, will also see their cost of living decrease if they still use or are paid in dollars.
These funds are poised to benefit from what’s expected to be a persistent decline for U.S. currency. Companies based in the United States that conduct a large portion of their business around the globe will suffer as the income they earn from foreign sales will decrease in value on their income statements. Investors in such companies are also likely to see a what is carry trade in forex negative impact. That combination of domestic weakness and improvement overseas is helping push the dollar lower. Health care is generally a recession-proof business, as people will cut back on just about anything else to make sure they have money for the treatments that improve their quality of life.
Impact on Multinationals
The U.S. dollar entered the pandemic near its highest levels in over 15 years, which made it more vulnerable to a pullback. In the intervening years, however, McDonald’s has more fully embraced local flavors by offering region-specific fare. And when you look at the full scope of this international restaurateur with more than 36,000 global restaurants in more than 100 countries, you’ll appreciate how complicated that can be.
Domestic Companies Insulated From the US Dollar
The term weak dollar is used to describe a sustained period of time, as opposed to two or three days of price fluctuation. Much like the economy, the strength of a country’s currency is cyclical, so extended periods of strength and weakness are inevitable. Alternatively, gold funds have been less volatile than broad-based commodity ETFs in recent years.
Commodities
General Electric’s diversified operations boast many international clients, with non-U.S. Revenue of $55.8 billion in 2019, compared with $39.4 billion in domestic sales. And while GE stock remains battered in the wake of its spring flop due to coronavirus concerns, shares have stabilized and the company could enjoy a tailwind from a weak dollar. It might even offer turnaround potential in 2020 if the global recovery is indeed around the corner as some expect. Predicting the length of U.S. dollar depreciation is difficult because many factors collaborate to influence the value of the currency. Despite this, having insight into the influence that changes in currency values have on investments provides opportunities to benefit both in the short and long term.
- Over the past 12 months, iShares Gold Trust (IAU, $18, 0.25%) has gained 27.3%, in part because of the weaker dollar.
- When those foreign earnings are converted back to dollars, the company naturally earns more dollars as the currency weakens.
- For example, the British pound fell to $1.14, its lowest level in 37 years, on Sept. 7, 2022.
- Fidelity International Growth (FIGFX, expense ratio 0.99%) has beaten the EAFE index with less volatility over time, and without a hedge.
- McDonald’s Corp. (MCD) and Philip Morris International Inc. (PM) are well-known examples of U.S. companies with a large percentage of sales occurring overseas.
Also, KO has increased its dividend at least once a year for half a century, so it’s a pretty safe bet you’ll keep getting paid by Coke regardless of short-term economic trends. Broadcom (AVGO, $325.93) is a major chipmaker that designs and manufactures a range of semiconductor devices used in communications applications ranging from Wi-Fi and Bluetooth technology to GPS and cable TV. Based on 2019 numbers, net revenue booked in the U.S. tallied just $4.2 billion, against $8.1 billion in China and a total of roughly $22.6 billion. Google parent Alphabet (GOOGL, $1,498.37) racked up revenues of $161.9 billion in 2019, with slightly less than half of that ($74.8 billion) attributable to U.S. operations.
A weak dollar makes imported goods more expensive for American consumers to buy, but it makes American goods a relative bargain abroad. American companies with a global reach can do well when the dollar is weak while losing some sales when the dollar is strong. Just as imports become cheaper at home, domestically produced goods become relatively more expensive abroad.
Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology.
A strong dollar allows U.S. consumers to purchase goods and services from overseas for less than if the dollar was weaker. It also helps compensate for rising inflation by keeping purchasing power from dropping too much. Americans using U.S. dollars can see those dollars go further abroad, chainlink link to omni usd exchange affording them a greater degree of buying power overseas.
It depends on the demand for the dollar, how long it remains a safe haven, and whether it maintains its status eurusd technical analysis today archives as the dominant global currency. Foreign companies that do a lot of business in the U.S. and their investors benefit from a strengthening dollar. Multinational corporations with large sales in the U.S., which earn income in dollars, will see gains in the dollar translate to gains on their income statements and balance sheets.