Basic Reasons for the Dollar's Slide
There are several reasons why the dollar has fallen. Most recently, the turmoil in the housing market is causing some loss of global investor confidence in the greenback. But the bigger impact is the Federal Reserve's reductions in U.S. interest rates, ostensibly because of a weakening economy. When the Fed cuts interest rates, savers (including international savers) earn less on their deposits. And that makes the dollar comparatively less attractive, so they tend to pull out of U.S. dollar-denominated interest-bearing accounts and put them into accounts in places like Europe and Australia. (I saw plenty of bank billboards in Sydney advertising time deposit rates well above 7%. The highest yielding one year U.S. CD is currently 5.40%, for comparison.)
The Fed also occasionally intervenes directly in foreign currency markets. Or fails to intervene. Currency markets can fluctuate, and the world's central banks sometimes try to dampen the oscillations. The Fed Chairman and his policymakers seem quite happy to let the dollar slide in an effort to boost exports, and with few exceptions other central banks haven't been particularly keen to push their own currencies in the same direction. (They aren't buying many dollars, in other words.)
The oil markets are also causing some interesting dollar effects. Oil is surging for a variety of reasons, getting near $100/bbl. It's a bit difficult to explain briefly, but let's just say that increases in the underlying value of oil (and the causes of those increases) certainly aren't helping the dollar.
Weak Dollar Bad, Strong Dollar Good?
You probably shouldn't read too much into adjectives like "weak" and "strong" in describing a currency's value, at least beyond their immediate and direct meaning. The Fed is correct, that a weak dollar does benefit export businesses, and that should translate at some point into more robust employment and economic growth among U.S. export manufacturers, export services, etc. Conversely, imports (including oil) become more expensive, and that could prove inflationary. Many experts think the Fed is playing a dangerous game.
If you have dollar-denominated wealth but are also a "global citizen," you are now poorer. If your wealth is held in other currencies, and you like to spend time in the U.S., you're richer. That also means U.S. tourist industries should enjoy a booming business, assuming there aren't other reasons to keep international tourists away. (Republicans trying to scare American voters in 2008 with profoundly unserious talk about terrorists hiding in voters' bedrooms wouldn't help.)
International Currencies and Tourism
The international tourism market is a complex one, and there are many factors that influence prices for transportation, hotels, meals, entrance fees, etc. For example, high oil prices should make air travel, particularly long distance air travel, more expensive than in the past. But if you do manage to find wonderful fares, then once you arrive in a particular country the strength or weakness of your dollar will have the biggest impact on your real expenditures.
Here are some countries that are, at least for the moment, comparative bargains. That means these countries have either gotten cheaper (in dollar terms) based on the change in exchange rates over the past two years, or at least the dollar hasn't slid as far. (For comparison, the dollar has slid about 18% against the Euro and about 16% against the U.K. pound in the past two years.) Percentages are approximate and rounded. Negative percentages mean the dollar is weaker compared to the other currency.
Argentina: +5%
China: -8%
Dominican Republic: 0%
Hong Kong: 0%
Japan: -2%
Jordan: -1%
Lebanon: 0%
Mexico: 0%
Pakistan: +2%
South Africa: -2%
Taiwan: -3%
United Arab Emirates: 0%
You may also wish to visit countries with fixed dollar exchange rates, such as Aruba, Bahrain, the Bahamas, Oman, Saudi Arabia, Panama, and Venezuela, among other places. (Yes, the "evil" but democratically elected Hugo Chávez has pegged his country's currency to the U.S. dollar.) Cuba's convertible pesos haven't changed their rate with the dollar in over two years, although travel to Cuba presents its own unique set of complications.
Where to Go?
Based on these results, here's some general advice. Avoid greater Europe. Exchange rates there range from bad to really bad. That includes places like Russia and the former Warsaw Pact countries, Egypt, Israel, and many former European colonial countries around the world that are still influenced by European currencies, such as Bermuda. (Attention Christians: Republican economic policies are making it much more expensive for you to visit the Holy Land. Vote Democratic so you can afford to visit Bethlehem and Jerusalem again.)
I don't have too much data on African currencies, but South Africa looks fine assuming you can find a decent fare or cash in some frequent flyer miles. (There's more airline competition into South Africa now, and there are discount airlines within South Africa.) Northern Africa looks expensive, though.
Some Arab countries look like relative bargains, although fares can be high so check mileage award availability there, too. If you are a student of architecture there are exciting building projects in many Arab cities, including some "world's tallest" efforts, and the duty free shopping is second to none if you happen to like brand name products. If you enjoy drinking alcohol then you won't enjoy some of these countries, such as Saudi Arabia.
Your best bet in Asia is probably to book a roundtrip to Taiwan. Traditionally airfares to Taipei have been among the lowest, particularly from the U.S. West Coast. There are still some great business class fares if you shop carefully. You can usually include a stopover in Tokyo as part of your ticket without paying much extra. There's a new high speed rail line from Taipei to the south of Taiwan, and a quick hop on a discount carrier for a couple days in Hong Kong, possibly with some cross-border shopping outside the S.A.R. and a ferry to Macau if you like casinos, would make a memorable Asian vacation with good exchange rates. Depending on your view, Japan is either a bargain or comparatively less unreasonable, so if you're ever going to go now's probably the time. Cherry blossom season is beautiful, although with global warming it's happening earlier. Airfares to Tokyo are still quite expensive, though, and trending upward, so combine with the Taiwan trick or cash in miles. Places like Thailand, Singapore, Malaysia, and Indonesia are comparatively more expensive than two years ago, although even with a price rise most Americans would find many of these ASEAN countries affordable, with the possible exception of tourist areas like Phuket.
The dollar is a bit stronger in Pakistan, but it's substantially weaker in India. If you're planning to hunt down Osama, it'll be a little cheaper now, assuming he's still there.
Oceana's exchange rates are dreadful. Skip Australia, New Zealand, Fiji, etc.
In North America, forget about Canada. Marry a Canadian, perhaps, but buy your wedding ring south of the border. If you'd like to see Arctic ice before it's all melted, your best currency bet is probably northern Alaska. Mexico is still a good deal, as are many parts of the Caribbean and Central America (such as fixed exchange rate Panama). The Caribbean is also the heart of the cruise vacation industry, so hopefully cruise prices will remain stable despite probable higher demand as Americans stay closer to home.
In South America, Argentina is a great deal, as is Venezuela. (In fact, Argentina is the best currency deal among major countries that I studied.) There are some more airline seats into Argentina (e.g. American Airlines from Chicago), so there might be some good fare deals. Patagonia is the most popular jumping off spot for Antarctic cruises, although at this point you're probably too late to book for this coming summer (U.S. winter). Brazil is not financially attractive, nor is Chile particularly. So it's hit or miss in the region.
Other Considerations
There is a high environmental cost to tourism, so you may wish to buy carbon offsets, take advantage of genuine "eco-tourism" opportunities, and otherwise minimize the weight of your footprints as you trek across the globe.
Try to minimize transaction costs for converting currency as you travel. ATMs are generally more attractive than exchange windows, assuming your home bank has reasonable terms. Certain credit cards are better than others. Capital One, for example, charges nothing extra for foreign currency transactions with their cards, although the Visa and MasterCard systems both charge a small percentage.
Prices for package tours are generally set about a year in advance, and if you purchase the right package at the right time you can enjoy some currency benefits. There are also numerous "tricks" to getting lower airfares, including buying domestic tickets within certain countries after you arrive, using discount carriers, stopovers, student discounts, and consolidator fares purchased from companies catering to expat communities living in the U.S.
Past Editions and Disclaimer
That concludes today's Money Sunday. Be sure to add comments, though, to share your weak dollar advice. You may also find these past articles useful:
May 20, 2007: How Do Stock Options Work?
May 13, 2007: The Benefits of "Automatic" Retirement Funds
May 8, 2005: Is There a Housing "Bubble"?
April 24, 2005: Saving with Little or No Lifestyle Impact
April 17, 2005: Stocks Down (Again)
April 10, 2005: Enjoy Credit Card Rebates
April 3, 2005: Dealing with High Oil Prices
March 13, 2005: Declining Dollar, What to Do
As a reminder, Money Sunday is no substitute for professional financial advice, and the information presented here is for entertainment purposes only. So don't sue me, DailyKos, or anyone else if something doesn't work out for you.
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