If you have multinational US corporate behemoths in your portfolio, you’re probably acutely aware of the fact that the policies emanating from the White House have very real and very meaningful implications for your companies’ topline.
One of the things you should be most concerned about (obviously) is the trajectory of the USD.
Below, find a chart and some accompanying color from Goldman regarding what you can expect given the dollar’s strength since the election and given the fact that, Trump’s dollar downer rhetoric notwithstanding, the greenback is likely to remain buoyed by structural tailwinds including favorable rate differentials going forward.
Expectations for higher interest rates and inflation as well as more protective trade comments (destination-based tax, higher import tariffs) contributed to the US Dollar Index rising by 7% qoq. While the greenback has given back some of its gains recently, investors continue to focus on what a stronger USD could mean for corporates, from the top-line translational impact to more nuanced implications for demand and how overseas competitors could use FX as a weapon.
A headwind for multinationals. After a benign 1Q-3Q 2016, the dollar moved higher in 4Q 2016 and despite the recent pullback, is set to weigh on US companies’ top-line in 2017. As recently as December, FX was on pace to be an almost 300 bp headwind; it has since faded and assuming spot rates hold, we expect a typical multinational to face a 170 bp top-line headwind this year. If the dollar was to strengthen another 15% vs. other currencies, we could be in for a repeat of 2015, when FX was a 700 bp yoy drag.