Importers sweep, with exporters giving up all of their gains from last week. This fits the trend of dollars gaining in value in anticipation of higher US interest rates combined with quantitative easing in Europe and Japan.
Caterpillar (CAT) is a case of a US exporter suffering from a perfect storm of conditions. They focus on construction and energy equipment, which are subject to the ebbs and flows of commodity prices. With commodities reaching new lows, orders for new mining equipment are expected to drop. Interest rates are expected to rise in the US, and in response, globally. This makes Caterpillar’s equipment more expensive to finance. To add insult to injury, the US interest rate increase will continue to fuel the rise of the value of a dollar, making their equipment more expensive in local currencies. As the dollar increases in value, this only depresses commodity and oil prices. Likely, Caterpillar has sophisticated hedges to offset some of these factors. The only “silver lining” is that any manufacturing inputs that are imported into the United States are becoming cheaper every day.
Caterpillar will survive because they have a diversified supply chain, a variety of products, and access to global markets. These lessons can be applied to smaller importers and exporters. If you import your products from a single country, consider identifying suppliers in other regions. If you export your products to a single country, consider looking at new markets. By having suppliers and customers located in multiple countries, you are in a position to take advantage of changes in foreign exchange market – or survive perfect storms.
Other US economic data for this week is here.
Who won the battle last week, between the USD and five currencies? The perspective is strictly from America, so if against the Aussie Dollar, United States importers won, that also means Australian exporters won as well. I am changing the sign convention: negative percentage changes mean that exporters have the advantage while positive numbers show the advantage for importers.
|Currency||Week Ending 9-25-15||Weeks in a Row||Weekly Change||YTD Change|
|Australian Dollar (AUD)||Importers Win!||0||2.2%||14.30%|
|Canadian Dollar (CAD)||Importers Win!||0||1.1%||12.91%|
|Euro (EUR)||Importers Win!||0||1.9%||7.51%|
|British Pound Sterling (GBP)||Importers Win!||0||2.2%||2.24%|
|Japanese Yen (JPY)||Importers Win!||0||0.2%||0.31%|