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🌐 Series 9 — Global Investing & Economic Forces

Day 5: The US Dollar’s Role and Global Market Interconnections

Why the USD quietly controls more of your investments than you think.

When I first started investing, I used to think, “Why should I care about the US dollar? I’m not even buying US properties or living in America.”
But over time, I realised something shocking — the US dollar affects almost every market in the world, including the stocks, funds, and ETFs that many of us hold.

It influences commodity prices, investor behaviour, global trade, and even the interest rates of other countries.
In short, understanding the US dollar is one of the biggest shortcuts to understanding the global financial system.

Today, I want to break this down for you in the simplest way possible so that even a 12-year-old can understand.
By the end of this, you’ll see the US dollar from a completely new angle — and you’ll know how to use that knowledge to make smarter investment decisions.

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💵 Why the US Dollar Is the King of All Currencies

The US dollar is not just another currency. It’s the world’s reserve currency.
This means governments, central banks, and large institutions keep USD as one of their main holdings.

Think of it like this:
If currencies were characters in a movie, the US dollar is the main hero.
Everyone pays attention to what it does.

Here’s why:

1. Most global trade is priced in USD

Countries buy and sell oil, gas, metals, technology, and even food using USD.
Even if two countries don’t use USD locally, they still use USD to trade with each other.

2. Most commodities follow the USD

Oil, gold, copper, wheat — almost everything big is priced in USD.
When the USD moves, these prices move too.

3. Investors trust the USD during uncertain times

When fear hits the market, investors worldwide rush to the USD because they see it as “safe.”

This is why you’ll often hear this phrase:
“Strong dollar, weak commodities. Weak dollar, strong commodities.”

Once you understand this pattern, you naturally become a stronger investor.

📉📈 How USD Strength or Weakness Impacts Markets

Let’s break this down into simple terms.

When the USD strengthens, it usually means:

• US interest rates are rising

• Investors are seeking safety

• There is fear or uncertainty in global markets

• Money flows into US bonds and cash

• Other currencies weaken

When the USD weakens, it can mean:

• Global markets are more confident

• Investors feel safe to take risks

• Commodities like oil and gold rise

• Emerging markets attract capital

This is why you might see something like:

• Stock markets rising globally when USD weakens

• Gold exploding upward when USD weakens

• Asian markets dropping when USD strengthens

Most new investors don't notice this connection — but the moment you do, you start reading markets more accurately.

🌐 How the USD Shapes the Rest of the World

It may sound unbelievable, but the USD affects everything, from developing countries to giant corporations.

Let me break down a few examples to show you how deep this goes.

1. Emerging Markets Are Very Sensitive to USD Movements

Countries like Malaysia, Indonesia, Thailand, India, and Brazil feel the effects of USD strength strongly.

Why?

Because many of their governments and companies borrow money in USD.
When the USD becomes stronger, their debt becomes more expensive.

This leads to:

• capital outflows

• weaker stock markets

• slower growth

• higher inflation

This is why you’ll see emerging markets struggle when the USD is rising.

2. Commodity-exporting countries depend heavily on USD

Countries like:

• Saudi Arabia (oil)

• Canada (oil)

• Australia (iron ore, minerals)

• Chile (copper)

… all feel the impact of USD movements deeply.

When USD is strong:

• commodity prices fall

• their economies slow

• their currencies weaken

When USD is weak:

• commodity prices boom

• their exports grow

• their stock markets rise

Understanding this can help you invest smarter globally.

3. Corporations worldwide price their goods in USD

Even companies outside the US often use USD pricing for their products.
This is especially true for shipping, aviation, tech components, and raw materials.

So when USD moves, their profits move too.

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🛢️✨ The USD–Commodity Relationship

One of the most important relationships in global investing is between the USD and commodities.

Here’s the simple rule I mentioned earlier:

Strong dollar → lower commodity prices
Weak dollar → higher commodity prices

Why?

Because commodities are priced in USD.

Example:
If USD becomes stronger, people in other countries need more of their own currency to buy the same amount of oil or gold.
Demand falls → price falls.

This is why:

• Gold often rises when USD weakens.

• Oil jumps when USD weakens and global demand is strong.

• Agricultural goods also tend to move opposite USD strength.

If you’re ever unsure about gold’s next move, one of the first things you can check is the direction of the US dollar.

🌏 The US Dollar Index (DXY)

There’s a simple tool investors use to track the strength of the USD — the Dollar Index (DXY).

This index compares the USD to a basket of major currencies like the euro, yen, and pound.

Here’s how to interpret it:

• When DXY is rising → USD is strong

• When DXY is falling → USD is getting weaker

If you follow the DXY for a few weeks, you’ll quickly see how many markets move in response to it.

For example:

• DXY up → Gold often drops

• DXY down → US tech stocks often rise

• DXY up → Emerging markets drop

• DXY down → Commodities gain strength

It’s like watching the heartbeat of the global economy.

🔄 USD and Global Interest Rates

Here’s another deep but important connection.

When the US Federal Reserve raises interest rates:

• USD becomes stronger

• borrowing becomes more expensive worldwide

• stock markets get pressured

When the Fed cuts interest rates:

• USD weakens

• borrowing becomes cheaper

• global markets tend to rally

• risk assets like tech stocks and crypto rise

If you want to understand global markets, you must pay attention to the US interest rate cycle.

💣 What Happens When the USD Gets Too Strong

Sometimes the USD becomes too strong.
This can hurt the global economy.

Here’s what usually happens:

• Emerging markets face currency crises

• Countries struggle to repay USD-denominated debt

• Commodity prices crash

• World trade slows

• Corporate profits weaken

It’s like tightening a rope too hard — something eventually snaps.

This is why central banks, businesses, and governments always keep an eye on USD levels.

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💡 What Happens When the USD Gets Too Weak

A weak USD can also shake the global system.

Here’s what usually happens:

• Inflation rises globally

• Commodity prices spike

• Investors rush into gold

• Countries with large USD reserves suffer losses

• Money flows out of the US into risky assets

A weak USD can be both good and bad, depending on which part of the market you’re looking at.

This is why understanding USD cycles can help you know when to be aggressive and when to be defensive.

🧭 How You Can Use USD Knowledge to Invest Smarter

Let me share a few simple strategies you can use right away.

1. Watch the USD before investing in emerging markets

If USD is rising strongly, it’s often not the best time to invest in emerging markets.

If USD is weakening, emerging markets often perform well.

2. Use USD trends to understand commodities

If you invest in:

• gold

• oil

• copper

• silver

• agricultural ETFs

The USD trend is a powerful clue.

3. For long-term global investing, USD cycles help you time entry points

A weakening USD usually signals a friendlier environment for risk assets.

4. Use USD trends to protect your portfolio

If USD is strengthening suddenly, it might be time to:

• reduce high-risk positions

• increase cash

• add defensive assets

5. Pay attention to your home currency vs USD

If your home currency weakens, your USD investments become more valuable.
If your home currency strengthens, USD investments can lose some value.

Knowing this helps you manage your FX exposure.

⭐ Real-Life Example: Why Tech Stocks Love a Weak Dollar

US tech companies earn a lot of money overseas.

When USD weakens:

• foreign earnings convert into more USD

• profits look bigger

• share prices often rise

When USD strengthens:

• overseas profits shrink

• stock prices get pressured

This is why you’ll see tech stocks often rally during periods of USD weakness.

🔍 Another Example: Why Gold Surges When USD Drops

Gold is priced in USD.

So when USD drops:

• gold becomes cheaper for the rest of the world

• global demand rises

• gold prices increase

This is why gold’s best years almost always line up with periods of USD weakness.

🧠 The Key Lesson: The USD Is Not Just a Currency — It’s a Signal

The US dollar is like a giant signal light for global markets.

Green light → USD weakening → risk assets often rise
Red light → USD strengthening → risk assets often struggle

Once you learn to read this signal, your investing decisions become clearer.

You stop guessing.
You start understanding.

Final Takeaways

If there’s one thing I want you to remember from today’s lesson, it’s this:

The US dollar quietly shapes almost every corner of the global financial system.
Learning to read its movements gives you a powerful advantage as an investor.

When you understand the USD:

• you understand market cycles

• you understand commodity trends

• you understand risk-on and risk-off behaviour

• you understand emerging market strength

• you understand global money flows

Most retail investors ignore this.
But now you won’t.

And that alone puts you one step ahead.

🚀 Your Action Step

Take five minutes today to check:

• is the USD in a strengthening trend?

• or a weakening trend?

Then look at how your portfolio might react.

If you do this regularly, you’ll slowly build the skill of reading global market conditions — the same way professionals do.

Let’s keep growing, learning, and investing smarter together.

[Live Life Grow Wealth]

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DISCLAIMER

I make no representations, warranties, or guarantees, whether expressed or implied, that the content provided is accurate, complete, or up-to-date. Past performance is not indicative nor a guarantee of future returns.

I am an individual content creator and not regulated or licensed by the Monetary Authority of Singapore (MAS) as I do not provide investment services.

All forms of investments carry risks, including the risk of losing your entire invested amount. Such activities may not be suitable for everyone. You are strongly encouraged to seek advice from a professional financial advisor if you have any doubts or concerns.