Dollar consolidates after correcting off multiyear highs
In the second half of March, the U.S. dollar index spiked to its highest levels since late 2002. The index corrected lower in a six-session slide, finding support near its 20-day moving average.
Despite some contrarian views, the dollar clearly remains the world’s preferred reserve currency amid the economic disruptions already seen as a result of the COVID-19 pandemic.
With many commodities traded in dollar-denominated contracts, a stronger dollar would be presumed to add to pressure already felt in many markets.
A weaker Brazilian real has multiple effects on the country’s energy sector, fuel demand, and sugarcane sector, for example. Lower fuel demand on slowing economic activity and social distancing would reduce demand for ethanol while sugar exports could be more attractive, swinging more cane crush to sugar. A weaker real, however, makes both gasoline and ethanol imports more expensive for Brazil. And the extreme weakness of crude oil now should also pressure ethanol pricing, naturally.
U.S. dollar index
Source: DTN, McKeany-Flavell
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