The Silver Lining in the Dollar's Decline

For years, export-led economic growth has been the strategy to advance many Asian and developing economies. But it's not a policy generally associated with economic advancement in the U.S., home to the world's largest GDP and domestic market.

Still, a nearly 25% decline in the value of the dollar vs. the euro over the past year is producing the benefits of a cheap-currency export policy.

Blue-chip Dow components with international exposure have been notable beneficiaries. At Honeywell(HON Quote), a more favorable exchange rate enhanced sales about 4%, or $200 million. IBM(IBM Quote) said a cheaper dollar added about 23% to its European sales, sales that would have risen by only 3% had exchange rates held steady.

A lower dollar helped Eastman Kodak(EK Quote) snap a prettier earnings picture. Kodak said first-quarter earnings and sales would have actually come in negative had it not been for the favorable exchange rate. And relatively cheaper Post-Its and tape products in foreign markets boosted sales at 3M(MMM Quote).

The dollar's decline has helped line corporations' coffers. Should June Dollar Index Futures (DXM3:NYBOT) break contract lows, the measured-move objective shown in the following chart suggests the greenback could shed another 5%, a decline that would continue the trend of adding to multinationals' bottom lines.

The major averages and index futures are behaving well since following through off the March 12 low.

If the dollar remains in a downtrend, look for favorable exchange rates to continue boosting overseas sales and supporting the averages.