This graph compares the inverse pattern of nearby New York cotton prices (in red) and an index (in blue) of the U.S. dollar relative to a basket of six currencies: the euro, Japanese yen, British pound sterling, Canadian dollar, Swiss franc, and the Swedish krona. Those six countries and currencies have little to do with cotton economics. However, to the extent that U.S. dollar strength (for whatever reason) against these currencies coincides with U.S. dollar strength versus cotton exporting countries (e.g., Brazil, Australia, Central Asia, and sometimes India), then this chart may reflect situations where a strengthening dollar is directly associated with lower U.S. export competitiveness. There are periods of time in this chart where the inverse relationship breaks down, e.g., 2013. That period coincided with a time when European sovereign debt was weakening the euro relative to the dollar, which represents a distortion to what this chart is trying to explain. A potentially cleaner comparison would be of the U.S. dollar versus the Brazilian real or the Aussie dollar. The more cotton-specific impact of the U.S. dollar value on U.S. exports can be inferred from USDA calls trade-weighted exchange rate indices. These data suggest that the U.S. dollar got 6.4% stronger (year-over-year) in 2015 compared to the currencies of the specific countries that we trade cotton with. 2016 also saw a rise in the relative value of the U.S. dollar, but only around 4%. This means that U.S. cotton was roughly that much more expensive to foreign buyers compared to other cotton exporting countries.
Lastly, this chart may, at times, reflect an entirely different phenomenon. To the extent that large financial institutions (investment banks, hedge funds) are moving money across asset classes, a rise in the dollar could reflect a risk off shift of investment out of stocks and commodities (driving down cotton futures, all other things being equal) and into U.S. treasuries. This would presumably be reflected in a rising U.S. dollar. Parts of this graph may be explained by such movements, and they have little to do with cotton economics or export competitiveness.