Friday, August 17, 2012

Great Graphic: Nominal Effective Exchange Rates

Guest post by Marc Chandler (

This Great Graphic comes from an email I received from Thomson Reuters. It charts the nominal effective exchange rates (NEER)of the dollar, euro, Swiss franc and Australian dollar. It is weighted by trade partner, but is not adjusted for inflation. Some economists take the NEER measure and adjust for inflation. This generates a real effective exchange rate (REER). Both capture a dimension of general competitiveness.

The strength of the Australian dollar and to a lesser extent, the Japanese yen is underscored here. The fact that the euro is weaker is not surprising. What is noteworthy is the softness of the US dollar. There have been some reports suggesting that the rise in the dollar will curb US exports. Yet, US exports are at record highs and the latest data (June) puts them up 7% from a year ago.

As we noted yesterday, Obama's goal of achieving a 50% rise in US exports during his term has been nearly reached. US exports have risen 48% since early 2009. At the same time, when ever one thinks about US exports, keep in mind that US companies service foreign demand primarily by building locally and selling locally. Sales by majority owned affiliates of US multinationals sell 4-5 times more goods abroad than the US exports. The US has pursued primarily a foreign direct investment strategy rather than the more traditionally export strategy.
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