Obama Stimulus Package to Weaken Dollar (Revisited)

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Barack Obama’s stimulus Package was approved by both Congress and Senate. It narrowed down from $825 billion to 787$, but it’s still huge. Now that the final offer was approved, it’s time to look into it, and see how it will affect the dollar.

On January 26th, I wrote that the stimulus package contains spilling lots of dollars into the economy, something that will weaken the dollar. Well, it sure does.

The stimulus package, that was hardly approved, focuses on creating jobs: 800K in 2009, and 2.3 million up to the end of 2010. More jobs naturally mean more spending.

But there are also direct actions that spill money, or print it if you wish. 400 dollar tax cuts for workers, and a 250 check for old age pensioners. All this money, combined with investments in infrastructure mean lots of money into the economy.

And where will this money come from? Well, America will continue to borrow it’s way out of the crisis, practically print dollars. And too many dollars mean that it’s worth less…

In the previous post about this issue, I mentioned that the price of gold climbed above the $900 mark. Well, it now trades at $940. So, it already made a climb of 4.5% in three weeks. Gold is a solid safe haven when money becomes worthless.

And which currency will benefit most from gold? Well, the Australian dollar. crnow stands at 0.6548. It didn’t make wild moves in the last three weeks. It will be interesting to see if the Australian dollar jumps after trading resumes. I’ll write a technical analysis of the Australian dollar later on.

So, even though Obama’s plan brings high hopes for the revival of the American economy, the dollar will be hurt from it.

If you’re more into technical analysis than fundamental analysis such as this, it’s better to first practice with a forex demo account.

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

17 Comments

  1. Casey Stubbs on

    Yes, You are right the dollar will hurt, I also believe that the economy will hurt. Because you can't borrow your way out of a crisis. Eventually that money has to be paid back. Being in debt is being a slave to the lender. America is selling itself away. Some day they will have to deal with that.

  2. Thanks Casey. Yeah, someday they'll have to pay back the debt. In the meantime, I'm not sure how long China can continue buying US treasuries.

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  4. Robert Bumbalough on

    Greetings Yohay:

    Yohay wrote: "Yeah, someday they’ll have to pay back the debt. In the meantime, I’m not sure how long China can continue buying US treasuries."

    The USA will never pay back its debt. Instead, the USA will inflate, Ponzi, and repudiate its debt. China will keep buying into the t-bond Ponzi scheme as long as doing so gives them influence with the big kids.

    Gold to 5000 within ten years seems reasonable to me.

  5. Robert, I don't recall that the US didn't pay it's debt. Do you really think they'll do such a thing?

    You wrote that gold will reach 5000 within ten years. Any short term forecast for gold?

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  7. America does have the option of defaulting on the loans as did Argentina, Mexico etc in the past. Will that happen?

    Who knows… all I know is that America is in debt to the tune of about $53 Trillion and has tens of millions of Baby Boomers retiring in the next 10+ years who were promised a retirement income, not to mention Medicals.

    So… gold –> $5,000 is very possible as the train wreck of an American financial system looms.

  8. Russell, thanks for pointing out the Baby Boomers. I wonder how America will encounter it's huge debt…

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  10. Forex Advice on

    Australian dollars will have the benefits because of the gold price..i hope the economy of the Philippines will not hurt because of this..

  11. Russell Melhem on

    The money is moving to Western Europe (Not England) and Asia. Welcome to the new world.

    Don't blame Obama, he is the best man at the right time. America has had a good run printing fiat money. All roads lead to civil unrest.

    Only America can destroy America and unfortunately it will happen.

    The currency say's "In God we trust"

    Yet they trust in China,in the S & P 500 and stimulus day dreamers. But you can not expect them to put their hands behind their backs and do nothing.

    If it wasn't for the God given talent of the Jew's, the American economy wouldn't be much.

    The American Jewish bank's fell and so did America's economic health.

    Graph the correlation. This is not occult, this fact. Follow the momentum, follow the leaders.

    Wealth is a blessing not a short or long position.

  12. I also think that Obama is doing a rather good job. I do believe and hope that he's doing the right thing in the long term. In the short term, I think that the package weakens the dollar.

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