After a rapid rise between 2014 and 2016, the Broad Index, has fallen month on month, (m/m) for the eight month in a row. On a three moving average, (3MMA) y/y comparison, the dollar has fallen for seven consecutive months. A falling dollar is good news for steel companies and manufacturers that export.
Figure 1 shows the track of the Broad Index from 2012 to present. The Broad index climbed rapidly from mid-2014 reaching a peak of 100.90 in January 2016. At this point the Broad index fell-back for a few months before climbing once again, establishing a new peak in December 2016 at 103.09 of this year. It has trended sharply downwards since then, reaching 94.54 in September, its lowest reading since June 2015.
Table 1 lists the values of the US dollar measured in the currency of the 16 steel trading nations that we follow as of October 4th. It reports the changes in, one year, 3 months and one month for each currency and is color coded to indicate strengthening of the dollar in red and weakening in green.
Fifteen of the 16 countries’ currencies have lost value against the dollar over the past month ranging from -1.2% for Brazil and Taiwan to -6.1% for South Africa. The United Kingdom’s pound was the only country to see an increase, (+1.6%) against the dollar m/m.
Volumes of imported goods to include long product steel are heavily influenced by currency exchange. The correlation coefficient between net long product imports and the Broad Index from 1995 to present is 0.692, a fairly strong relationship.
The U.S. Dollar is pushing its highest level in a month after the September U.S. jobs reported this morning that the nonfarm payroll figure came in at negative 33,000. The headline, (U3) unemployment rate fell to a cycle low of 4.2%, while the Labor Force Participation Rate rose to 63.1%.
At Gerdau, we keep a close eye on the currency market because it has a profound impact on both the import and export of raw materials, semi-finished and finished steel. A strengthening USD is a “double-edged sword”, as it makes the US market more attractive other countries to export to the US and conversely imposes strong head-winds for the US to export its products to other nations.