US Dollar Index: Dollar's strenght bas news for the global economy – NBF

The broad U.S. dollar index reached an 18-year high this month. That’s bad news for an already-weakened global economy, in the opinion of  Krishen Rangasamy from National Bank of Canada.

Key quotes

“In theory, USD appreciation is a positive development for non-U.S. economies because their exports are suddenly more competitive. But that impact tends to be more than offset by headwinds generated through the financial channel.” 

“If the cost of financing rises, this will slow lending and borrowing in U.S. dollars, hurting trade volumes. That explains the observed negative correlation between growth in global trade volumes and that of the Broad Dollar index.”

“The record amount of USD-denominated debt can turn an appreciating greenback into a major problem. A stronger USD can indeed make it harder for firms to service their dollar credit.”