What Does a High Dollar Mean for US and non-US Investments?

Quiz!

Since 1970, what was the impact on the 3-year return of US and non-US investments, when the dollar reached high levels like today?

1. It helped the returns of US investments and hurt the returns of non-US investments.
2. It hurt the returns of US investments and helped the returns of non-US investments.

What Does a High Dollar Mean for US and non-US Investments?

Recently, the dollar reached a very high level last seen in 2002 and 1986. What does this mean for US vs. non-US investments? Since 1970:

1. Very high currencies suffered from a drag during the following 3-year returns
2. Very low ones enjoyed a boost to the following 3-year returns.

While these past results don’t guarantee a repeat in the future, today’s conditions are encouraging for non-US investments relative to the US ones.

There are two explanations for this behavior when the dollar was unusually high:

1. The low currencies increase the growth of non-US companies, by attracting US consumers, who get to buy more cheaply.
2. The currencies increase back to fair value, increasing stock prices as measured in dollars.

Quiz Answer:

Since 1970, what was the impact on the 3-year return of US and non-US investments, when the dollar reached high levels like today?

1. It helped the returns of US investments and hurt the returns of non-US investments.
2. It hurt the returns of US investments and helped the returns of non-US investments. [Correct Answer]

Explanation: Please read the article above for an explanation.