Situation In Venezuela Adds To Dollar Uncertainty

Venezuela has experienced hyperinflation and steep gaps between official and black market exchange rates. Ordinary businesses and Venezuelans price goods and transact in US dollars, pushing up local demand for dollars.

Venezuela also holds some of the largest oil reserves in the world. Oil is priced in dollars globally and a sudden change in supply or sanctions can affect price expectations, which influences broad foreign exchange sentiment and central bank forecasts. This affects the dollars role as the key reserve currency.

But, with more oil reserves, the US will likely become one of the wealthiest countries, even richer than many oil rich countries in the middle east. The US will no longer need to trade with these middle eastern countries, as Venezuela holds more oil than all of them and that means the US will be able to operate independently.

This of course can only happen if the plan goes through. The plan being to gain control of Venezuela in order to get ahold of the oil reserves.

Global markets would then shift a lot, as big changes will occur and some countries will benefit, while others will be left in the mud. Currencies like the Venezuelan bolivar will have much more value due to the reserves in the country and this would strengthen the bolivar against many major currencies.

The recent reported military actions have triggered the fear index for investors causing volatility in the market, investors often look for a safe haven and that is usually found in Gold or the US Dollar, but with these actions, gold seems to be the more likely option.

Chances are likely that more instability can happen as the situation has not been completely resolved yet, and it could go on for a long time as we have seen US related politics tend to gain more traction world wide.

As long as the situation is not resolved, dollar uncertainty could continue and investors will likely be buying up gold and staying away from the dollar during this time. This makes me believe that the US will try to resolve the situation as soon as possible.

Until we have a clear statement as to what all the plans are for Venezuela, then we can only sit and wait for something to happen, and this is exactly the reason why shying away from the dollar is the better option as you dont want to put more unnecessary risk on yourself.