Trump is tanking the US dollar. This is what it means for your back pocket
Sunday, 1 February 2026
In the early 1970s, amid the US dollar crisis, triggered by the decision to decouple the currency from gold, then-US Treasury Secretary John Connally stunned a group of European Finance Ministers with a quote that has gone down in history.
“The dollar,” he proclaimed, “is our currency, but it’s your problem.”
While unapologetically self-assured, the statement rang true in 1971, and it continues to apply today.
When the US dollar moves, the world feels it. It’s the proverbial butterfly wings that flap in one nation, only for the impact to reverberate across the global economy.
This is particularly pertinent right now as the US dollar this week hit its weakest period in nearly a decade, sliding overall by more than 10% in the last year and by more than 20% against other major currencies like the Euro.
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To put this into context, if you wanted to purchase a US$1000 in early 2025, you would have forked out $1790. Based on today’s rate, the same $1000 would only cost you $1640.
At the same time, we’ve also seen the purchasing power of the US dollar come down markedly due to inflation over the last five years.
If you had put a million US dollars in a safe in 2021, the equivalent purchasing power of that money today would only be US$795,000.
All of these small mathematical conversions matter because of how important the US dollar remains on a global level.
Roughly 54% of all international trade invoices use US dollars, even though the United States only accounts for around 10% of all trade happening across the world. This means that when an Argentine company buys something from China, the transaction most often happens in US dollars rather than the peso or the yuan.
It’s also worth noting that almost 90% of all currency trades globally involve the US dollar. This is because the US dollar is often used as a bridging currency between different countries. If you wanted to trade Thai baht for the New Zealand dollar, it would likely first be converted to the US dollar.
There is simply no currency more influential in the global context than the US dollar.
What’s going on with the US dollar?
The best way to track the performance of the US dollar is to look at the US dollar index, which tracks the US dollar against a basket of six major world currencies (Euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc).
Eric Walkington, a sales trader at CMC Markets, tells me that while the dollar has taken a dive over the last year by dropping 10 to 12%, it still holds a relatively strong position over the longer term.
“The dollar is taking a vacation from the looks of things,” Walkington says.
“This is not necessarily a concern on its own, as it’s a normal part of the cycle for it to go up and down. It is a little extended compared to the last three years, but we are still 6% higher than levels that we were at during 2020-2021 and even 2018.”
The US dollar has long been viewed as a safe haven when it comes to investing, with many people looking to acquire cash when world events become more volatile. But this isn’t the case this time.
While gold (the benchmark of safe havens) is hitting fresh records, the US dollar is struggling. There is growing speculation that this could signal the beginning of the end for it as a central currency used around the globe. As trust diminishes, so too does the confidence in what the US offers.
However, Walkington says any shift from our reliance on the US dollar will take time.
“I don’t see this as an overnight shift,” he says.
“Yes, there are more and more options for countries to use for payments, but as the saying goes, Rome wasn’t built in a day, and it didn’t fall in a day either… Could this be a shift? Possibly, but for me, when we see the Shanghai Metals Exchange start to price silver and gold in yuan then I’d be concerned. The US dollar is still the most used currency by a long shot, and a shift away from that takes decades, not months.”
The strange thing about all this is that US President Donald Trump doesn’t appear too concerned about the US dollar weakening.
“Trump wanted a cheap dollar to improve competitiveness in the market and he got it, ” says Walkington.
What this means for Kiwis
There will be both short- and long-term consequences to the US dollar dropping in value. Some impacts will be seen in the near future, while others take a longer time.
Greg Boland, a market strategy consultant at stock broking firm Moomoo Australia and New Zealand, explains that the near-term impact will be positive for Kiwi households.
“Fuel, goods, and commodities priced in USD become cheaper,” he says, explaining that imported inflation will come down.
But it isn’t all good news further out.
“If the US dollar is weakening because global investors are reassessing risk and credibility that typically brings greater volatility, higher global borrowing costs, and tighter financial conditions,” Boland says.
“For a small, open economy like New Zealand, that means external shocks matter more, not less.”
Global investors are keeping a close eye on US debt levels in the United States, particularly after an acknowledgement this week from Federal Reserve Chair Jerome Powell that the US fiscal deficit is on an unsustainable trajectory.
“While he was careful to stress this is not an immediate crisis, it is rare for a Fed Chair to speak so plainly about fiscal sustainability, and markets are listening,” Boland says.
While the world remains focused on tariffs and Trump’s impulsive actions, Boland says these comments from Powell tell a more accurate story about the long-term problems simmering under the surface in the United States.
“Tariffs are more of a catalyst than the root cause,” he says. “The deeper concern is the combination of persistent deficits, rising debt, and the perception that long-term fiscal discipline has been abandoned.
Some countries are starting to take action to ensure they’re not too tied into the US system amid these concerns.
“We’re seeing more countries quietly diversify their reserves, experiment with alternative settlement systems, and reduce reliance on the dollar,” Boland says, explaining that it comes down to countries managing risk amid the growing uncertainty about the US.
“The [US] dollar remains dominant, but it’s no longer unchallenged in the way it was a decade ago, and markets are adjusting accordingly.”
An opportunity for New Zealand?
As investors vote with their feet by looking for alternative safe havens beyond the US dollar, Kiwibank chief economist Jarrod Kerr believes there could be an opportunity for New Zealand.
“If anything, New Zealand and Australia stand out as attractive alternatives for investment in a new world order,” says Kerr.
“We may actually benefit from more foreign investment, especially in our bond markets.”
Kerr also anticipates that the New Zealand currency may strengthen as the year progresses.
“We forecast the Kiwi to rise to 63c [to the US dollar] by year's end, as the economy recovers,” he says.
“The currency strength will give some welcome relief for inflation. A higher Kiwi equals cheaper imports. And we need that.”
With inflation at 3.1%, outside the Reserve Bank’s target zone, anything that helps to push the price of goods down in the coming months will be viewed as good news for Kiwi shoppers.
“Importers are looking at the Kiwi [dollar] strength as being a blessing during hard times,” says Kerr.
Kerr also says the ability of the current US administration to further affect the price of the US dollar will be limited by the remaining duration of the current presidential term.
“Over the long term, Trump won’t be in power. It’s just three more years.”
But those could be three very long years based on the economic volatility we’ve seen over the last 12 months.