what pushes US $ up or down

What are the local/global factors that weaken or strengthen the USD?

It seems like in a big dip right now- why so?

Thanks
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anushahannaAsked:
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spogsCommented:
OIL ... the higher the price of OIL the lower the USD compared to other currency.

My opinion :)

Obviously more complex than that but it seems to be a good metric.

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MstrLanceCommented:
Fluctuations in exchange rates
 
A market based exchange rate will change whenever the values of either of the two component currencies change. A currency will tend to become more valuable whenever demand for it is greater than the available supply. It will become less valuable whenever demand is less than available supply (this does not mean people no longer want money, it just means they prefer holding their wealth in some other form, possibly another currency).

Increased demand for a currency is due to either an increased transaction demand for money, or an increased speculative demand for money. The transaction demand for money is highly correlated to the country's level of business activity, gross domestic product (GDP), and employment levels. The more people there are unemployed, the less the public as a whole will spend on goods and services. Central banks typically have little difficulty adjusting the available money supply to accommodate changes in the demand for money due to business transactions.

The speculative demand for money is much harder for a central bank to accommodate but they try to do this by adjusting interest rates. An investor may choose to buy a currency if the return (that is the interest rate) is high enough. The higher a country's interest rates, the greater the demand for that currency. It has been argued that currency speculation can undermine real economic growth, in particular since large currency speculators may deliberately create downward pressure on a currency in order to force that central bank to sell their currency to keep it stable (once this happens, the speculator can buy the currency back from the bank at a lower price, close out their position, and thereby take a profit).


Source: http://en.wikipedia.org/wiki/Exchange_rate
anushahannaAuthor Commented:
so there is a direct relationship between
http://gasbuddy.com/gb_retail_price_chart.aspx
and
http://www.x-rates.com/d/EUR/USD/graph120.html ?

What will take for the gas price to come down again?
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MstrLanceCommented:
When speculative investors have attractive, upwardly-mobile stocks and in which to invest (think dot-com, energy, housing, ponzi-scheme securities... all the "bubbles" that have inflated, then burst) the investment money goes to those. After the bursting happens, then all of the investors have to look around for some other place to grow their money, and commodities is the next best option. Investing in oil futures drives the price of gasoline up by increasing investor demand while the supply stays unchanged. What will drive gas prices back down the fastest is the entrance of the next new financial vehicle for the speculative investors to throw their money into.
anushahannaAuthor Commented:
so this must be a up and down thing. Right now these investors are investing in oil; then it shifts to something else; then again oil; then something else?

This is peak gas price in a long time. What does it tell about the economy in general- that it is at its worst?
MstrLanceCommented:
Yes, investment shifts to oil and other speculative commodities - food items, building materials, precious metals and so forth. There is a supply side factor as well: crude oil prices are initially set by oil producers based on availability and extraction costs as well as market demand and political or strategic factors. Add to this the refining costs, the distribution costs, taxation, and corporate profit margins, the equation become pretty murky.

Gas prices were considerably higher in the U.S. a few short years ago, but so many other factors are involved with these price levels that it's difficult to ascribe a direct connection to general economic health.
anushahannaAuthor Commented:
hmm.. so many factors!!
so no way to predict even in a remote way when this chart will start coming down?
http://gasbuddy.com/gb_retail_price_chart.aspx
CCSOFlagCommented:
The price of oil is not an indicator of the worth of the dollar in and of itself.  That is simply the supply and demand of oil.  Just because there is a shortage of oil doesn't mean the worth of the dollar is suffering.  If the cost of all consumer products is going up (which it pretty much always is), then that means the worth of the dollar is going down.  
MstrLanceCommented:
so no way to predict even in a remote way when this chart will start coming down?


I'm afraid there isn't. If there were a way to predict this chart, even in a general way, people would tend to buy early when prices are low and rising, and put off buying when prices are high and dropping, effectively undermining the prediction, as this behavior would raise the low prices and lower the high prices.

anushahannaAuthor Commented:
"If the cost of all consumer products is going up (which it pretty much always is), then that means the worth of the dollar is going down."
CCSOFlag, does this apply to euro also?

anushahannaAuthor Commented:
MstrLance, very excellent point. thanks.
CCSOFlagCommented:
CCSOFlag, does this apply to euro also?

It applies to any currency.  If the same goods from the past are costing more, then the worth of your currency is going down.  If they are getting cheaper then the worth of your currency is going up.  If those same goods are more expensive in other countries then your currency is worth more than theirs.

The following is dumbed down and simplified and not a true example:
so let's say we compare US, and Australia.

Let's say the cost of a head of lettuce in the US is 1.00 USD.  That same head of lettuce costs .50 AUSD.  Let's say 10 years ago it was .75 USD and .75 AUSD.  If these ratios were the case for all goods in both countries, this would mean the the USD has lost worth and the AUS has gained in worth in the past 10 years, and currently the USD is half the worth of the AUSD.  The "worth" of a currency is it's buying power.  While oil is one of the goods that currency buys, it's not the only good by far, so you can't just look at oil to try to determine the worth of currency.  I can actually give you a good example: In Ecuador they actually use the US Dollar.  When I was in Manta in 2006, the cost of gasoline was around 3.50 a LITER.   At that time the cost of gas in the US was I believe in the low 4.00 a gallon.  If it was a matter of the worth of your currency, then they SHOULD be the same price if they are using the same currency.  This wasn't the case because the supply and demand for gasoline is different between the US and Ecuador.

CCSOFlagCommented:
Anush,

Also, The Euro is going to tend to be more stable, because you have so many countries using it.  Even if a couple countries' value of goods goes down, there are bound to be a couple other countries where it has gone up, so it helps to balance out the worth of that currency within the area of it's use.  Now compared to other countries it again would depend on how that other country is doing with their own goods.

Does that make sense?

anushahannaAuthor Commented:
CCSOFlag, your examples were simple, yet  brilliant.. was helpful to understand.. thanks much.
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