SME exports: Destinations, dollars and opportunities
The desk interprets the recent surge in foreign currency revenues among US small and medium-sized enterprises (SMEs) as a positive signal for the overall trade landscape and corresponding currency movements. Per the full note from Bank of America, about 270,000 SMEs are projected to generate one-third of total US goods exports in 2023, with a significant focus on key markets such as Mexico, the EU, Canada, and China. This shift presents opportunities for the US dollar, particularly against major currencies as SMEs expand their global reach. The commentary implies that increasing SME participation in exports could bolster the dollar, reflecting broader economic resilience.
What the desk is arguing
The desk believes that the uptrend in foreign currency revenues for SMEs signifies a robust trade outlook and potential dollar strength. The commentary reveals that SMEs made a substantial contribution to US exports in 2023, emphasizing their role in the trade balance, which could support the dollar's performance in the foreign exchange market. Per the full note from Bank of America, these SMEs represent around one-third of total US exports, highlighting their significance in global trade.
This positivity is further underscored by the concentration of SME exports in major markets like Mexico and the EU, which traditionally align well with US economic interests. Should this trend continue, it could place upward pressure on the USD as trade dynamics favor American exporters.
Where it sits in our coverage
Our consensus target for USD pairs generally sits at 1.075, with notable forecasts from firms like: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's position on the potential strengthening of the dollar through SME exports aligns closely with jpmorgan, but contrasts with bofa, which maintains a more cautious outlook. The consensus reflects a spread that suggests a divergence in expectations regarding USD performance relative to other currencies.
How other firms see it
Firms like jpmorgan and goldman see potential for USD appreciation following positive trade developments, while bofa diverges, suggesting the dollar may face headwinds. The commentary emphasizes the importance of dollar performance against the euro and CAD currencies, especially as SMEs expand their reach in these markets.
What the calendar says
There are currently no high-impact events on the calendar that directly correlate with the concerns raised in the current commentary regarding SME exports and their economic contributions.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01SMEs are crucial in shaping the US export landscape, accounting for one-third of total exports.
- 02Foreign currency revenues from SMEs have surged, indicating economic resilience.
- 03Key markets for SME exports include Mexico, the EU, Canada, and China, promising opportunities for the USD.
- 04The dollar's performance may be influenced by positive trade trends among US SMEs.
Market implications
Traders should watch for the dollar's reaction to SME export trends, particularly as the upward trajectory could position the USD to break through key resistance levels. Monitoring movements against the euro and CAD will be critical in the coming weeks as these dynamics unfold.
Risks to this view
A reversal in the dollar's strength could occur if macroeconomic indicators point toward a weakening labor market or inflation pressures prompt a shift in monetary policy stance from the Federal Reserve. Deteriorating global trade relationships could also dampen SME export growth, undermining this bullish narrative.
~~~~~~~~~~~~~~~ Bank of America ~~~~~~~~~~~~~~~ SME exports: Destinations, dollars and opportunities Small and medium-sized exporters have seen a surge in foreign currency revenues. Only a small share of US small and medium-sized enterprises (SMEs) export directly, but those that do play an outsized role in trade. Roughly 270,000 SMEs exported goods in 2023, representing around a third of the total value of US goods exports, according to the US Department of Commerce.
SME exports are concentrated in major markets such as Mexico, the European Union, Canada and China, highlighting their importance to US trade. Click below to access our latest publication for a more in-depth look at these insights. You are receiving this email as a subscriber to Bank of America Institute analyses on the economy. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Read the publications, available through the link(s) above, for complete information including important disclosures.
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