The U.S. dollar is strengthening for reasons that go beyond deliberate devaluations of the euro and yen. Major commodity exporters are also purposely pushing down their currencies as commodity prices drop. The Canadian, Australian and New Zealand dollars as well as the Brazilian real, Russian ruble and other emerging economies are all playing this game.

Those countries want weaker currencies to offset declining commodites exports, writes A. Gary Shiiing.

So far this year, grain prices are falling, as are industrial commodity prices. Crude oil prices rose until mid-June, but have since dropped 25 percent and now are the lowest in six years. Spurred by fracking, U.S. oil output is exploding as economic softness in Europe and China and increased conservation have curtailed consumption. Copper, which is used in everything from plumbing fixtures to computers, is dropping in price as supply leaps and demand lags.

The U.S. dollar is elevated against other major currencies by the carry trade. With positive spreads between the yields on 10-year Treasury notes and those of Germany and Japan (and even less creditworthy Spain and Italy), it’s attractive to sell those sovereigns to buy Treasuries.

The spreads are small, but with a leveraged position, the carry trade can be very profitable — and even more so as the dollar appreciates. Who would want to own a 10-year German bund yielding 0.83 percent with a falling euro, or a 10-year Japanese government bond returning 0.47 percent as the yen drops, when the 10-year Treasury note yields 2.5 percent and the dollar is climbing?

In times of trouble, the dollar is the world’s safe haven. Foreigners flock to Treasuries and other dollar-denominated investments, elevating the greenback’s value.