It’s been seven months since the dollar surged to the highest level since at least 2005 -- long enough for the prolonged bout of weakness in the world’s reference currency to reshape the trading landscape.
The reasons behind the dollar’s swoon have been analyzed at length. Here’s a look at how the softer greenback has forced investors in markets from equities to emerging assets and commodities to rewrite their trading theses.
Stocks
A softer dollar boosts the purchasing power of overseas customers looking to pick up American-made goods and increases the value of profits that U.S. companies earn abroad. That’s shown up in the earnings and share prices of large, internationally focused companies.
A Goldman Sachs basket of stocks with international exposure has beaten its domestically oriented peer by about 11 percentage points in 2017. It’s on course for the best year of outperformance since 2009. Similarly, the S&P 500 Index is beating the Russell 2000 Index of small caps by five percentage points.
The dollar’s 3.2 percent slide in the second quarter was a boon to multinational companies’ bottom lines, according to Savita Subramanian, Bank of America’s head of U.S. equity and quantitative strategy.
“Two times as many mega caps have positively surprised versus the smallest stocks, and earnings for the small-cap benchmark are coming in below expectations (where analysts already expected a year-on-year earnings decline), with less than 30 percent beating on earnings per share and sales,” she wrote in a note to clients.
The inverse has been true in the rest of the developed world, where firming economic growth prospects have driven currency gains. European analysts have trimmed earnings estimates, citing the strong euro’s impact on overseas earnings and exports.
Commodities
Resources denominated in dollars quite naturally have benefited from the greenback’s weakness, though strengthening demand from China hasn’t hurt. Industrial metals have surged to the highest since 2015, led by copper and iron ore. And crude briefly reclaimed the $50-a-barrel mark even as signs mount that a global glut is showing few signs of abating.