What Will a Weaker U.S. Dollar Mean for U.S. Lumber?

On Wednesday, President Donald Trump made two statements that could have big impacts on U.S. lumber markets. In his interview with the Wall Street Journal he stated:

  1. “I think our dollar is getting too strong,” and;
  2. That he likes “a low interest-rate policy”.

If President Trump supports a weaker dollar and lower-for-longer interest-rates, this is supportive of U.S. lumber prices. A weaker dollar means more demand for U.S. lumber from overseas export markets and a headwind for imported lumber. Lower interest-rates obviously support demand for new housing starts.

U.S. lumber prices are already historically high, and have a number of tailwinds that suggest these prices could stay elevated longer than usual. The President’s statements add yet more support for this scenario.

In fact, this week’s spike in U.S. random length lumber futures coincided with a rally in gold. Why is this significant? Gold rallied in part, as a safe haven, as the broader markets were in a risk-off mode.

Gold and lumber often move inversely of each other. When the price of one trends up, the other trends down. While increases in gold prices signify risk-off market sentiment, lumber is the opposite, signifying a risk-on sentiment. Lumber markets are driven by demand for new homes, which is not something that people buy if they feel risk averse.

With lumber rallying this past week to near all-time-highs while the broader market was decidedly in a risk-off mode, this seems to be a pivotal period in the markets… Are lumber prices and gold going to rise together, signaling inflation? Or does this mark a peak in lumber, and a new upward trend for gold, signaling a time to be defensive?

If President Trump’s statements this week become policy, then a weaker U.S. Dollar and lower-for-longer interest-rates add yet more tailwinds to already soaring lumber prices.

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