The United States dollar (USD) occupies a central position in the international monetary system as the dominant reserve, invoicing, and settlement currency. Consequently, fluctuations in its value have important implications for international trade and economic performance. This study examines the relationship between movements in the U.S. Dollar Index (DXY) and U.S. merchandise trade with two major trading partners—the European Union and Canada—over the period 2002–2015, encompassing the 2008 Global Financial Crisis and its aftermath. Using quarterly data, a series of ordinary least squares (OLS) regression models are estimated to analyse the relationships between the DXY, bilateral exports and imports, the EUR/USD and USD/CAD exchange rates, and the U.S. terms of trade. The results indicate a significant negative association between the DXY and both U.S. exports and imports vis-à-vis the European Union and Canada, suggesting that periods of dollar depreciation coincided with stronger bilateral trade flows. The analysis also reveals a strong inverse relationship between the DXY and the EUR/USD exchange rate, a positive relationship between the DXY and USD/CAD, and a positive association between the DXY and the U.S. terms of trade. The findings highlight the close relationship between exchange-rate movements and U.S. trade performance and contribute partner-specific evidence to the broader literature on exchange rates and international trade.
US Dollar Index; exchange rate depreciation; bilateral trade; terms of trade; OLS regression; international trade policy.
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