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How the Fed Could Drive the Direction of the U.S. Dollar This Year

Tyne Morgan

September 25, 2020

As farmers face strengthening exports, a weaker U.S. dollar is helping that scenario. Darren Hudson, Director, International Center for Agricultural Competitiveness at Texas Tech University, says the direction of the U.S. dollar in the coming months could be one of the biggest opportunities and risks for commodities like cotton.

“Where we see strength or weakness really comes in the dollar, because we're exploiting so much of that stock, and so the dollar helps us move that cotton out," says Hudson. "W strengthening dollar would really stymie that that foreign demand."

What direction could the dollar take in the coming months? Hudson doesn’t see a lot of reason to think the U.S. dollar will trend dramatically in the other direction.

“Right now, I think what the Fed's objective is to weaken that dollar,” says Hudson. “They've been pushing out as many dollars into the market as they possibly can. That going forward is definitely a weakening sign, and I don't see anything political that would cause us to strengthen that dollar anytime soon.”

Donna McAllister is an assistant professor at Texas Tech University. She says beyond the dollar, the biggest risk to commodities like cotton heading into harvest is the large old crop stocks still on hand.

“The biggest risk is probably that leftover ending stock that we have from last year,” says McCallister. “Like Darren said, there's low textile demand, it's not going to go anywhere anytime soon. So, we really need to worry about getting rid of last year's crop before we bring in next year's crop.”

Despite the hefty old crop stocks for cotton that showed up in the latest WASDE report, China is slowly coming in to buy more U.S. cotton. McCallister says while 70-cent cotton may not be in the cards this year, prices are in the upper 60s today.

“We are about two to three weeks away from harvest,” she says. “So, we're getting really close. If we go off of where we've seen prices recently, I think there's room for hope. Ideally, it's not going to be as great as what we always shoot for at that 70-cent cotton, but I think that they're going to be okay this year.”


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