As the value of the US dollar continues to surge, markets like Australia, are facing increasing risks that could reverberate across global economies. The rising USD, driven by looming policies under former President Trump, particularly his “America First” agenda, could significantly affect countries like Australia, which relies heavily on trade with Asia, especially China.
With China’s currency weakening in response to potential US tariffs, and the dollar gaining strength, the Australian economy could be caught in the crossfire of a complex financial storm. Australia’s trade ties with China, its largest trading partner, and broader ties to the Asia-Pacific region, mean that fluctuations in the global currency and commodity markets could have a profound impact on the country’s economic stability. As emerging markets struggle with currency devaluations, inflation, and rising costs, Australia must prepare for a potential slowdown in demand for its exports, particularly in sectors reliant on Chinese growth.
Emerging markets are teetering on the edge of a financial storm as Trump’s return to the White House is fuelling a massive dollar rally that could wreak havoc on developing economies.
This is the warning from Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory and asset management organizations, as the US dollar touched its strongest level in six months on Tuesday.
The Dollar Index, which tracks the US currency against a basket of peers, was up 0.4% for the day.
He says: “As the dollar strengthens on the back of looming Trump policies on Chinese imports, economies across Asia, Latin America, and beyond are staring down a wave of currency devaluations, inflation spikes, and economic instability.
“Investors are already seeing echoes of 2016, but this time, the stakes are even higher.”
Trump’s renewed America First agenda could mean unprecedented tariffs on China, potentially up to 60%.
“Such heavy-duty tariffs would likely trigger a dramatic plunge in the renminbi, with devastating ripple effects across emerging markets,” notes the deVere CEO.
“When China’s currency falls, it drags down other emerging market currencies with it, creating a domino effect of depreciations across the developing world.
“For dollar-pegged economies like Argentina, Egypt, and Turkey, the fallout could be particularly catastrophic as they face the risk of explosive devaluations, uncontrollable inflation, and the threat of full-blown financial crises.”
Emerging markets are also in the crosshairs of Trump’s trade policy. As the dollar continues its upward trajectory, emerging markets are bearing the brunt of this shift. With most global trade priced in dollars, these economies face rising costs for imports, skyrocketing inflation, and an increased burden on their dollar-denominated debt.
“The challenge isn’t limited to just one region. Asian economies, Latin America, and African markets alike are vulnerable to currency plunges, inflation hikes, and investor flight if the dollar surge continues unabated,” observes Nigel Green.
For commodity-exporting nations, a stronger dollar also spells weaker global demand, pushing commodity prices down and squeezing their economies even further. This scenario threatens everything from growth rates to employment stability across these markets.
“Investors looking to emerging markets for growth may soon find themselves dealing with a drastically altered investment landscape as the dollar steamrolls through these fragile economies.”
The effects of a dollar surge go beyond just currency devaluations. Local currency debt markets in emerging economies are facing mounting pressure as interest rates climb, driven by the global scramble to keep up with the appreciating dollar.
The deVere CEO says: “As borrowing costs soar, these countries will be forced to choose between defending their currencies and sustaining growth—a dilemma that has the potential to destabilize economies in the process.
“Without flexible exchange rates, these countries may see their economies hit hard by tightening financial conditions that they can no longer control.”
For global investors, the implications are clear: emerging markets are poised for significant volatility as the dollar strengthens.
“The next chapter of this economic story is starting, and for those prepared, it holds remarkable potential.
“A well-positioned portfolio could leverage these shifts, unlocking new gains in a world where the dollar dictates the rules,” concludes Nigel Green.
In the face of a stronger US dollar and a weakening Chinese yuan, Australia’s economy must navigate the uncertainty of global financial turbulence. While Australia’s close trade ties with China remain a key pillar of its economy, the ripple effects of these currency shifts—particularly on commodity prices and global demand—could pose significant challenges. As the value of the US dollar rises and Chinese economic activity slows, Australia may face lower export growth, higher import costs, and mounting pressure on its trade balance. With emerging markets across Asia and beyond already showing signs of strain, Australia will need to remain agile and strategic in managing these external risks, ensuring it can weather the storm and continue to thrive amidst global economic volatility.
