ZDI - BMO International Dividend ETF

Since the end of last year, our preferred gauge of the trade-weighted U.S. dollar (USD) has declined by several percent. This runs contrary to what you would normally expect as U.S. tariffs should (in theory) lead to a higher valuation for the dollar. However, theory doesn’t necessarily equate to practice – and the greenback’s decline speaks to a change in structural factors that we don’t see dissipating any time soon barring a substantial pivot in U.S. trade and foreign policy.

But before we delve into our rationale, we need to distinguish between the valuation of the U.S. dollar and its reserve currency status. What we are saying is that there is more room for the U.S. dollar to fall. We are not saying that the U.S. dollar will lose its reserve currency status. Instead, we are likely in the antechamber of a more balkanized world of reserve currencies, with the U.S. dollar remaining in the pole position.

As we update our quarterly portfolio strategy, we’re reminded of an important lesson that often must be re-learned. Namely, that markets are terrible at forecasting non-linear events.

To wit, we are preparing this edition just ahead of the ​“America First Trade Policy” memorandum is scheduled to be released. That release is expected to recommend additional country-specific tariffs to be implemented based on the principle of reciprocity and other non-tariff barriers. 

Additionally, tariff exemptions on USMCA-compliant imports from Canada and Mexico are set to expire on April 2^nd while the threat of sector-specific damage on autos, semiconductors and pharmaceuticals still looms large.