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How Weakness in the US Dollar Could Help US Automakers

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Nov. 20 2020, Updated 4:49 p.m. ET

The US auto industry

Previously in this series, we looked at recent US industrial production trends. Continued strength in February industrial production and motor vehicle assemblies could be a positive sign for the US auto industry. In the capital-intensive automotive industry, it’s important for automakers to protect their profits. Let’s look at how the US dollar affects US automakers’ profits.

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Recent weakness in the dollar index

As of March 27, the dollar index was at 89.0, marking a 3.1% loss in 2018 and a 1.7% loss in March. On January 3, 2017, the dollar reached 103.8, its highest level since 2003. It has fallen 14.3% since then, and in 4Q17, the index fell 1.8%.

The chart above shows recent US dollar index trends. Technically, there is immediate support at 88.6. Its 14-day relative strength index score was at 43.2, showing underlying weakness in its momentum. The US dollar index measures the value of the dollar against the currencies of some of its significant trading partners, including the United Kingdom, Europe, and Japan. A lower value suggests the US dollar is weakening compared with other currencies, and vice versa.

Is it good for US automakers?

The US dollar’s recent weakness could be positive for the international business of US-based automakers (FXD) such as Ford (F), General Motors (GM), and Tesla (TSLA). In 4Q17, US auto companies’ earnings were boosted by foreign currency movement. In contrast, Europe-based automakers Fiat Chrysler (FCAU) and Volkswagen (VLKAY) saw their US earnings impacted by weakness in the euro. Visit Market Realist’s Autos page for news and updates on the sector.

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