The dollar's movement tends to confound the plans of math geniuses, professional economists, armchair pundits, and amateur investors. For example, the consensus has long been that the dollar will continue fall against global currencies and that long-term interest rates on U.S. bonds would have to rise to help fund our twin trade and budget deficits. Yet so far this year the dollar has actually gained strength against the euro, and long-term interest rates have fallen.
The dollar's value is extraordinarily important to importers, traders, policymakers, and holiday-goers, so there is a feverish search for something—anything—that could reliably indicate the greenback's future direction. Michael Panzner, the head of sales trading at Rabo Securities, thinks he may have found that grail in an obscure bit of government data gathered by the U.S. Citizenship and Immigration Services: immigration-benefits applications.
Each year, millions of immigrants flock to America from every part of the globe. Many come illegally. But many come legally through ports and airports. Before they arrive, and once they're here, they have to file various forms and applications with the government to clarify or change their status. (Data on immigration benefits applications can be found here; the most recent monthly data is here. The relevant figure is "receipts.")
Panzner, who is also the author of the highly readable The New Laws of the Stock Market Jungle, assembled this chart showing the path of the U.S. Dollar Index —a weighted average of the value of the dollar against six currencies, including the euro, the Japanese yen, the British pound, and the Canadian dollar—and the path of monthly immigration-benefits applications since 1997. Notice that there's a close correlation and that the applications frequently seem to be leading the dollar. "There is always the possibility that it may just be coincidental, and not causal at all," Panzner says. "Nonetheless, it looks rather interesting."
Indeed. There are three possible reasons that one might have something do with the other, in ascending order of plausibility.
The Neil Diamond Theory. Rising applications could signify rising demand for dollars. The more people "coming to America"—on the boats and on the planes—the more demand for dollars to invest here, or to live on. When they buy dollars, that gives the greenback a boost. When comparatively few immigrants are applying for green cards, there's less buying pressure. But the currency markets are so big that to move them, the immigrants would have to be a bunch of billionaires like Rupert Murdoch, rather than students, restaurant workers, and medical residents.
The British Ski Instructor Theory.Immigration trends tell us something about the supply and demand for workers in this country. When they are in a hiring mode, companies may look overseas to hire engineers, computer programmers, nannies, or seasonal employees (which explains why I had a British ski instructor in Colorado a few years ago). In February 2005, about 35 percent of the received applications tallied by the USCIS were employment authorizations. When companies in important sectors of the U.S. economy like tourism, technology, and health care need to pull in more workers from overseas, that could be a sign the economy is kicking into higher gear. And rapid growth tends to be good news for the dollar.
The U.S.=Coca-Cola Theory. There's a global market for immigration. To a degree, the ebb and flow of immigration applications may reflect feelings of global consumers about the United States as a brand. If people around the world are down on the U.S., they may choose to immigrate to Canada or Great Britain. By the same token, the dollar is a brand that competes for attention and wallet-share against a range of foreign currencies. When confidence in the United States is shaken, you'd expect both immigration applications and the dollar to fall. (Look at how the volume of applications plummeted post-9/11.)
Of course, all sorts of factors that have nothing to do with the relative strength of the dollar affect the volume of immigration—wars, economic conditions abroad, congressional legislation, and security concerns. And all sorts of other factors having nothing to do with immigration can affect the path of the dollar. Still, it's an intriguing relationship.
So what signal has this indicator been flashing of late? Panzner notes that the numbers of immigration applications in the first two months of 2005 spiked sharply, neatly presaging the dollar's recent unexpected rally. If immigrants with "a dream to take them there" and "a dream they've come to share" continue to flock to America, the dollar could be in for a nice rally.