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Could US Dollar Movement Benefit US Automakers in 3Q17?

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The US auto industry

In the previous part of this series, we looked at recent trends in the US consumer sentiment data. Strong July consumer confidence and improving economic conditions could be a positive sign for the auto industry. In highly capital-intensive sectors including the automobile sector, it’s critical for auto companies to protect their profitability. Now, let’s move on by taking a look at one of the key factors that has a direct impact on US automakers’ profitability.

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Dollar Index weakness continues

As of August 2, 2017, the Dollar Index was trading at 93.0 with a 9.0% fall so far in 2017. Previously, in January this year, the Dollar Index posted its highest level since 2003 near 103.82 and turned negative after that. In July 2017, the index fell about 2.9%.

In the chart above, you can see the recent trend in the US Dollar Index. Technically, it’s trading very close to an immediate support of 92.60. The 14-day RSI (relative strength index) indicator is hovering within the oversold territory at 26.9, suggesting weakness in underlying momentum.

The US Dollar Index considers the value of the US dollar compared to the country’s significant trading partners. A depreciating value means the dollar is weaker compared to other currencies and vice versa.

Will US automakers benefit?

The recent weakness in the US dollar could be a positive sign for US-based auto companies’ international businesses (VCR) like General Motors (GM), Ford (F), and Tesla Motors (TSLA).

Last year, US auto companies’ earnings were negatively affected by an unfavorable currency movement. However, the US earnings of Europe-based auto giants including Fiat Chrysler (FCAU) and Volkswagen (VLKAY) witnessed a favorable impact due to a weak euro.

Read on to the next part to know how rising oil prices may impact the auto industry going forward.

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