Share This: DailyFX.com – Fundamental Forecast for the Kiwi: Bearish NZD/USD broke through the November lows as risk aversion around the world continued heating up throughout the week. Positioning remains stretched in the Kiwi-Dollar, indicating further losses may be down the road. If you’d like to follow positioning and sentiment changes on the Kiwi to get hints towards future movement in that market, check out our real-time SSI page (click here). The New Zealand Dollar continues to display a tight relationship with the bigger overall macro-theme of China and the larger overall threat of an Asian slowdown. Since China began their most recent descent on the heels of the December rate hike out of the Federal Reserve, the Kiwi hasn’t held up well at all. Eleven of the past twelve days have seen the Kiwi trade lower against the greenback (for a total move of -6.3%), and if we match it up with the Yen, it’s even worse – with the same 11 of 12 tally but an even larger move lower; with a full -8.45% lost against the Yen over that 12-day sequence. Almost like a light switch getting flipped off, the trend in the Kiwi turned sour with the turn of the New Year. While NZD was displaying abnormal strength, unlike many other major currencies, matters changed dramatically after the halt in Chinese markets on January 4th. This is when risk aversion picked up in the global economy and fear began to spread throughout markets. Things haven’t really been the same since; bids seem almost non-existent as investors have begun to duck for cover for fear of deeper development of a slowdown in Asia triggering vulnerable pressure points laid throughout the global economy. Further complicating matters is the fact that New Zealand’s economic data hasn’t been all that bad: We did see slight misses in building permits and home prices in the early portion of this week, but those were rather minimal misses on data that’s traditionally ‘laggy,’ so the question of these numbers efficacy towards pointing towards leading movements can certainly be questioned. Perhaps more pertinently, milk prices can potentially indicate the transmission impact of how aggressively a Chinese slowdown might be hitting the New Zealand economy. As a large exporter of powdered dry milk into China, the movements in milk prices have a tendency to correlate with NZD. These milk prices also indicate supply and demand for milk in China, so should China continue facing headwinds this will likely lead to further weakness in milk prices and, in-turn, the New Zealand Dollar. We discussed this premise previously, and since then this correlation has held remarkably well. So, while New Zealand CPI on Thursday will certainly have some impact towards NZD-performance, far more pressing will likely be the Global Dairy Auction on Tuesday and the movements in Chinese stocks over the next week. The case can even be made, right now, that Chinese economic data is more pertinent and leading for the New Zealand economy than even […]
US Dollar Slow To Respond to Risk Trends, Fed Keeping it Back?
Share This: DailyFX.com – Fundamental Forecast for Dollar: Bullish Debate over the timing of the Fed’s next rate hike was drowned out by China, commodities and capital markets’ plunge While risk aversion is broadening, the Dollar has yet to show it is serious about resuscitating its haven appeal What are the Traits of Successful Traders? See what our studies have found to be the most common pitfalls of retail FX traders. The Dollar still carries the glow of last month’s Fed hike and there is a new – and traditionally favorable – wind blowing in the currency’s favor: risk aversion. Yet despite, the encouraging fundamental circumstances, the Greenback is showing little of the drive it had enjoyed the past few years. The equally-weighted USDollar Index has inched up to a 12-year high while the trade-weighted ICE Dollar Index is virtually unchanged. Drives for commodity-currency based majors (USDCAD, AUDUSD, NZDUSD) and the tumble in the Cable (GBPUSD) seem to have more to do with counterparts than the Dollar itself. EURUSD, the world’s most liquid currency pair, perhaps best reflects the situation with a minor anti-dollar close week-over-week. If the fundamentals are favorable, why isn’t the currency performing? Price action is a consensus of the market’s views. What seems clear in an academic interpretation may find the masses place the emphasis on value somewhere else. We were already seeing the weight given to the Fed’s competitive monetary policy bearing fade through the closing months of 2015. After the first rate hike, that conviction further cooled. With considerable premium afforded the Dollar for the first rate hike and most scenarios of a dovish turn boding just as poorly for FOMC counterparts, the greatest potential is for the USD finding broader appeal for an accelerated rate path. Yet, that will be difficult to accomplish in current conditions – amid struggling capital markets and commodity deflated inflation expectations. Rate speculation has a date to contemplate: January 27 when the FOMC next meets. Yet, the market places a low probability on a hike so soon after December’s launch. Nevertheless, the coming week’s docket will help shape the discussion of timing/pace. Chief rate fodder will be the US consumer inflation statistics (CPI) due Wednesday. Price pressures are the primary restraint to a more aggressive tightening pace, but the tepid inflation figures are effectively curbed by the deep dive in commodity prices. It is unlikely that we see the case for a hike this month develop from this data. If relative returns are not going to be the primary motivation for Dollar movement in the week ahead, we should look at the other side of the coin – risk. The market is certainly far more interested in the bearings of speculative appetite at the moment than it is with which extremely low benchmark yield is set to barely nudge higher next. Sentiment suffered a nasty spill to close this past week. Global equities were trounced, high yield fixed income gapped down to mullti-year lows and the carry-focused Yen […]
If Risk Implodes, Which Currencies Stand to Suffer or Soar?
Share This: DailyFX.com – A sharp slide in capital markets reflected a strong ‘risk off’ mentality into the close of this past week. Will cooler heads prevail ahead or was that the next move to escalate a bigger shift in sentiment? US Dollar Forecast – US Dollar Slow To Respond to Risk Trends, Fed Keeping it Back? The Dollar still carries the glow of last month’s Fed hike and there is a new – and traditionally favorable – wind blowing in the currency’s favor: risk aversion. Euro Forecast – Euro Grind Continues as Prospect for ECB Action Slowly Increases It appears rather unlikely that the ECB will act again this week, but with risks to the ECB’s inflation forecasts growing by the day, we wouldn’t discount Draghi & co. keeping markets focused on March. British Pound Forecast – British Pound to Lose Further Unless the FTSE 100 Bounces Sharply Even though the Bank of England (BoE) meeting revealed another 8 to 1 split within the central bank, the British Pound may face additional headwinds next week and extend the decline from earlier this month should the fundamental developments coming out of the U.K. drag on interest rate expectations. Japanese Yen Forecast – Japanese Yen Shouldn’t be Strong, but it will likely Continue Higher The Japanese Yen finished the week sharply higher against most FX counterparts and remains the top-performing major world currency through 2016. Australian Dollar Forecast – Aussie Dollar Volatility Seen on China, US, Eurozone Event Risk The Australian Dollar faces another week of sharp volatility ahead as risk sentiment trends gyrate with the passing of key event risk from China, the Eurozone and the US. New Zealand Dollar Forecast – Watch China, Milk for Kiwi Cues The New Zealand Dollar continues to display a tight relationship with the bigger overall macro-theme of China and the larger overall threat of an Asian slowdown. Canadian Dollar Forecast – Bets of a BoC Rate Cut Rise As Oil Settles The Week Below $30 A Bank of Canada rate cut is now the preferred bet as the Loonie seems in near free-fall. Gold Forecast – Gold Down But Not Out as Risk Sell-off Persists- 1072 Support Gold prices retreated this week with the precious metal off by more than 1% to trade at 1090 ahead of the New York close on Friday. Sign up for a free trial of DailyFX-Plus to have access to Trading Q&A’s, educational webinars, updated speculative positioning measures, trading signals and much more! What are the Traits of Successful Traders? See what our studies have found to be the most common pitfalls of retail FX traders. original sourceDailyFX.com – A sharp slide in capital markets reflected a strong ‘risk off’ mentality into the close of this past week. Will cooler heads prevail ahead or was that the next move to escalate a bigger shift in sentiment? US Dollar Forecast – US Dollar Slow To Respond to Risk Trends, Fed Keeping it Back? The Dollar still carries the glow […]
Euro Grind Continues as Prospect for ECB Action Slowly Increases
Share This: DailyFX.com – Fundamental Forecast for EUR/USD: Neutral – Retail traders remain on the opposite side of the recent trend in EUR/USD. – EUR/USD hasn’t been conforming to the USDOLLAR Index’s breakout attempt. – As volatility increases across FX markets, it’s a good time for traders to reacquaint themselves with risk management principles. To receive reports from this analyst, sign up for Christopher’s distribution list. As the global equities rout rolled into the ides of January, the Euro’s broad appeal has remained. The second full week of the year resembled the first one, with the Euro outpacing the commodity currencies and the British Pound, while the Japanese Yen and the US Dollar benefited from the risk off nature of financial markets. Since the start of the year, EUR/AUD has rallied by +6.26%, EUR/NZD by +5.86%, EUR/CAD by +5.30, and EUR/GBP by +3.72%. EUR/GBP is particularly intriguing at present time as it may be in the process of carving out a major bottom. Unsurprisingly, as the Euro has gained, thanks to the “portfolio channelrebalancing effect,” equity markets have slipped; this relationship should be sustained over the near-term. We’ve previously speculated that the otherwise large net-short Euro position in the futures market should help buoy the Euro, and indeed, as shorts have been covered, the Euro has stayed elevated. During the week ended January 12, 2016, non-commercial traders in the futures market held 145.5K net-short contracts, a reduction from the 160.6K level observed during the prior week. While positioning isn’t as extreme as it was at its all-time high in March 2015, when non-commercial traders held 226.6K net-short contracts, there is still a significant enough net-short position that it may insulate the Euro if global equities remain under turmoil. Unfortunately for the Euro, the appeal it has in the current environment in the short-term may ultimately be negated by the longer-term thematic influence of the European Central Bank’s ultra-loose monetary policy. There will be calls for action this week, no doubt (and for good reason). The elephant in the room – the ongoing slide in commodity prices – remains. Brent Oil, the energy input the ECB bases their inflation forecasts around, is forecast at $52.20 per barrel for 2016. Depending upon how you measure it, energy prices are underperforming the ECB’s forecast in the neighborhood of –32.9% (December 2016 futures contract close on Friday) to -44.6% (spot close on Friday). Nevertheless, it appears rather unlikely that the ECB will act again this week. The ECB typically allows a period of time to pass between policy enhancements, so as to be able to measure the impact of prior policies. The deposit rate cut was just made in December, and there is still a long way to go under the ECB’s current QE program (though the goal posts could easily be changed again over the coming months). The expanded asset purchase program (APP) is only partly implemented at this point, with approximately €592 billion of purchases, or about 39.5% of the €1.5 trillion […]
Japanese Yen Shouldn’t be Strong, but it will Likely Continue Higher
Share This: DailyFX.com – Fundamental Forecast for Yen:Neutral USD/JPY Breakout in Focus Ahead of Fed, BoJ Rate Decisions USD/JPY: Just a Bounce or a Bona Fide Pain Trade? For Real-Time SSI Updates and Potential Trade Setups on the Japanese Yen, sign up for DailyFX on Demand The near-term breakout in USD/JPY may gather pace next week should the Federal Open Market Committee (FOMC) along with the Bank of Japan (BoJ) highlight the deviating paths for monetary policy. After removing the zero-interest rate policy in December, the Fed may largely retain an upbeat outlook for the world’s largest economy and look to implement additional rate-hikes in 2016 as the U.S. approaches ‘full-employment.’ With the Fed scheduled to release its updated forecasts at the March meeting, central bank officials may take additional steps to prepare households and businesses for higher borrowing-costs as Chair Janet Yellen remains confident in achieving the 2% inflation target over the policy horizon. However, the 2016 rotation may spur a dissent within the committee as St. Louis Fed President James Bullard, a central bank hawk, warns that the decline in energy prices may not be transitory and could impact the real economy. With the 4Q U.S. Gross Domestic Product (GDP) report anticipated to show the economy growing an annualized 0.8% following the 2.0 % expansion during the three-months through September, a shift in Fed rhetoric paired with signs of a slowing recovery may undermine the bullish sentiment surrounding the U.S. dollar as it drags on interest rate expectations. In regards to the BoJ, the central bank is likely to relay a dovish tone as Governor Haruhiko Kuroda keeps the door open to further expand the asset-purchase program, but more of the same may heighten the appeal of the Japanese Yen as market participants scale back bets for additional monetary support. It seems as though the BoJ remains in no rush to expand its quantitative/qualitative easing (QQE) program as policy makers have opted to merely push back its forecast for achieving the inflation goal, and Japan’s Consumer Price Index (CPI) report may encourage the board to endorse a wait-and-see approach as the core-core rate of inflation is expected to hold steady at an annualized 0.9% in December. With that said, market participants may scale back their bullish outlook for USD/JPY should the Fed show a greater willingness to retain its current policy throughout the first-half of 2016, while the BoJ talks down bets for an imminent expansion of its non-standard program. Indeed, the near-term rebound in the dollar-yen may gather pace ahead of the key event risks as it breaks out of the range carried over from the previous week, but the pair stands at risk of facing a further decline in 2016 should we see a material shift in the policy outlook. original sourceDailyFX.com – Fundamental Forecast for Yen:Neutral USD/JPY Breakout in Focus Ahead of Fed, BoJ Rate Decisions USD/JPY: Just a Bounce or a Bona Fide Pain Trade? For Real-Time SSI Updates and Potential Trade Setups on […]
USD/JPY to Stage Larger Recovery on Hawkish Fed, Dovish BoJ
Share This: DailyFX.com – Fundamental Forecast for Yen:Neutral USD/JPY Breakout in Focus Ahead of Fed, BoJ Rate Decisions USD/JPY: Just a Bounce or a Bona Fide Pain Trade? For Real-Time SSI Updates and Potential Trade Setups on the Japanese Yen, sign up for DailyFX on Demand The near-term breakout in USD/JPY may gather pace next week should the Federal Open Market Committee (FOMC) along with the Bank of Japan (BoJ) highlight the deviating paths for monetary policy. After removing the zero-interest rate policy in December, the Fed may largely retain an upbeat outlook for the world’s largest economy and look to implement additional rate-hikes in 2016 as the U.S. approaches ‘full-employment.’ With the Fed scheduled to release its updated forecasts at the March meeting, central bank officials may take additional steps to prepare households and businesses for higher borrowing-costs as Chair Janet Yellen remains confident in achieving the 2% inflation target over the policy horizon. However, the 2016 rotation may spur a dissent within the committee as St. Louis Fed President James Bullard, a central bank hawk, warns that the decline in energy prices may not be transitory and could impact the real economy. With the 4Q U.S. Gross Domestic Product (GDP) report anticipated to show the economy growing an annualized 0.8% following the 2.0 % expansion during the three-months through September, a shift in Fed rhetoric paired with signs of a slowing recovery may undermine the bullish sentiment surrounding the U.S. dollar as it drags on interest rate expectations. In regards to the BoJ, the central bank is likely to relay a dovish tone as Governor Haruhiko Kuroda keeps the door open to further expand the asset-purchase program, but more of the same may heighten the appeal of the Japanese Yen as market participants scale back bets for additional monetary support. It seems as though the BoJ remains in no rush to expand its quantitative/qualitative easing (QQE) program as policy makers have opted to merely push back its forecast for achieving the inflation goal, and Japan’s Consumer Price Index (CPI) report may encourage the board to endorse a wait-and-see approach as the core-core rate of inflation is expected to hold steady at an annualized 0.9% in December. With that said, market participants may scale back their bullish outlook for USD/JPY should the Fed show a greater willingness to retain its current policy throughout the first-half of 2016, while the BoJ talks down bets for an imminent expansion of its non-standard program. Indeed, the near-term rebound in the dollar-yen may gather pace ahead of the key event risks as it breaks out of the range carried over from the previous week, but the pair stands at risk of facing a further decline in 2016 should we see a material shift in the policy outlook. original sourceDailyFX.com – Fundamental Forecast for Yen:Neutral USD/JPY Breakout in Focus Ahead of Fed, BoJ Rate Decisions USD/JPY: Just a Bounce or a Bona Fide Pain Trade? For Real-Time SSI Updates and Potential Trade Setups on […]
New Zealand Needs a Relief Rally to Take Eyes Off RBNZ Rate Cut Bets
Share This: DailyFX.com – Fundamental Forecast for the Kiwi:Bearish New Zealand Dollar Ends Last Week With Strongest Rise Vs. USD in 3-Months Weak CPI on Less Global Demand Keeps RBNZ Ripe for a Rate Cute This Week For up-to-date and real-time analysis on the Kiwi and market reactions to economic factors currently ‘in the air,’ DailyFX on Demand can help. Risk markets are no longer staring at the abyss as they were at the beginning of last week, which is benefitting markets like equities, Oil, & the New Zealand Dollar. From the start of the year, the New Zealand Dollar has been on its back foot as traders were quick to look at the slack of high-interest rates that the RBNZ could cutto get the economy running smoothly again. The apex of this ‘sell the kiwi against anything,’ move was after the disappointing CPI print on the 19th. Inflation dropped to 0.1% YoY in the last quarter of 2015, showing the lowest print since 1999. Oil’s precipitous fall has hurt global inflation readings everywhere, and the RBNZ referenced China in their December meeting where they noted a further slowdown would, “warrant a mix of a lower New Zealand Dollar exchange rate and more-stimulatory monetary policy.” Most economists surveyed by Bloomberg do not expect a cut now, but rather in the spring if the global economy shows deterioration. Since that statement, the growth in China has been tepid, and the maturation that goes from being a manufacturing economy to becoming a consumer economy has been awkward for the world’s second largest economy. Recent readings after the RBNZ’s statement showed growth in China did fall to 6.8% YoY in the last quarter of 2015, which was the lowest growth rate in 25-years, and well below the 7.2% & 7.6% growth rate in 2014 & 2013 respectively. These data points and the potential for others like it could keep New Zealand’s CPI below long-term averages giving the RBNZ further scope to cut next Wednesday. After the RBNZ decision next week, we’ll see New Zealand Merchandise Trade Balance, which is expected to tick up from -779m to -131m due to a seasonality boost. Last month’s print showed the widest annual trade deficit in 6.5 years. original sourceDailyFX.com – Fundamental Forecast for the Kiwi:Bearish New Zealand Dollar Ends Last Week With Strongest Rise Vs. USD in 3-Months Weak CPI on Less Global Demand Keeps RBNZ Ripe for a Rate Cute This Week For up-to-date and real-time analysis on the Kiwi and market reactions to economic factors currently ‘in the air,’ DailyFX on Demand can help. Risk markets are no longer staring at the abyss as they were at the beginning of last week, which is benefitting markets like equities, Oil, & the New Zealand Dollar. From the start of the year, the New Zealand Dollar has been on its back foot as traders were quick to look at the slack of high-interest rates that the RBNZ could cutto get the economy running smoothly again. The […]
BoC Takes a Step Back from QE to Put Focus on Fiscal Policy, Stimulus
Share This: DailyFX.com – Fundamental Forecast for CAD: Neutral Fundamental Forecast for Oil: Bearish The Canadian Dollar put in a massive reversal move on Wednesday after the Bank of Canada took a ‘wait and see’ approach towards increases to further QE; moving the focus for future stimulus towards Fiscal Policy. After Wednesday’s Massive Reversal, Positioning is indicating that the Canadian Dollar may have hit a near-term low. If you’d like to stay up with positioning changes in real-time in the effort of cleaning trends and finding reversals, check out our real-time SSI. The more that a rubber band is pulled back, the harder the corresponding snap forward will be. CAD traders saw that effect taking place in the currency markets this week. After gapping down to another new 13-year low against the US Dollar to start the week, it looked as though we were in for another week of sliding Canadian Dollar prices. And after weeks that had seen losses of -2.5% and -3% respectively against the US Dollar, little hope was in sight for any type of respite from the pain. This is a change of -5.7% in the Canadian Dollar against the US Dollar in two weeks. This may not sound very large when stock markets around the world are putting in 20%-like moves, but you have to keep this in scope: Currencies are leverage-able. Putting a trade on at 5:1 leverage would allow a 5.7% movement to become a 28.5% change in the trader’s position; and this can cut in both ways, both for and against the trader (leverage is a double-edged sword, and too much leverage is one of the most common reasons that traders fail when trading currencies). This is why stops and risk management is so utterly important when trading currencies – you choose how fast you want the trade to move based on the leverage you take on. But on to more relevant matters: This was the week that the rubber band snapped the trend of the Canadian Dollar. We finally saw respite in the selling, and not just in the Canadian Dollar; but also that over-arching theme of drooping Oil prices. We’ll get into Oil here in a moment, but for now, let’s examine what actually went on in the Canadian Dollar that caused that rubber band to snap so aggressively. The Bank of Canada held a rate decision on Wednesday, and this is one of the few rate decisions of recent in which investors weren’t fairly certain of what was going to happen. Given the persistent pressure in the Canadian economy brought upon by falling Oil prices, many had begun to expect another rate cut or perhaps even an eye or allusion towards more QE. It made sense. Canada is in a unique political situation with Justin Trudeau having recently been installed as the Prime Minster of Canada largely on a platform based around fiscal stimulus. This removes pressure from Bank of Canada Governor Stephen Poloz, and we saw that flexibility […]
British Pound Shows Signs of Life Can it Continue Higher?
Share This: DailyFX.com – Fundamental Forecast for British Pound: Bearish Lackluster UK inflation and employment data does little to boost the Sterling Most traders make the same mistake in their trading. Do you? View our 2016 forecasts for the British Pound and other major currencies The British Pound finally showed signs of life as it recovered from multi-year lows to finish the week higher versus the Euro and the US Dollar. It was the first week in four in which the GBP rallied versus the Greenback and the first time in eight it gained versus the Euro. What are the odds it will recover further off of recent lows? A relatively uneventful week for UK economic data did little to boost the Sterling versus major counterparts, but the upcoming release of first estimates for Q4, 2015 UK GDP growth could force notable volatility in the GBP on major surprises. Analysts estimate the UK economy grew by 0.5 percent in the final three months of the year—marginally better than the 0.4 percent growth rate seen in Q3. Yet the year-over-year pace of expansion is likely to fall to multi-year lows at 1.9 percent. And therein lies a key driver of British Pound weakness: lackluster UK economic fundamentals offer little reason to buy into such a sharp downtrend. Global financial market turmoil nonetheless remains the largest single driver of GBP weakness, and further pressure on key markets may only exacerbate pressure on the British currency. The UK financial sector comprises approximately eight percent of total GDP, while total financial services exports account for another 13 percent of national accounts. Both of these key stats put Britain proportionately above all other G7 economies, and this in itself underlines why movements in the British currency remain closely linked to global markets. Whether or not the GBP continues to recover from recent lows will largely depend on continued recoveries from bellwethers such as the US S&P 500 and Chinese CSI 300. We’ll keep an especially close eye on price action on Sunday night’s Asian session, as big moves can and have set the pace for the rest of the week. UK economic fundamentals certainly matter, and the upcoming release of Q4 growth figures could quite easily force short-term volatility. Yet the larger GBP trend remains closely linked to outlook for global financial markets. original sourceDailyFX.com – Fundamental Forecast for British Pound: Bearish Lackluster UK inflation and employment data does little to boost the Sterling Most traders make the same mistake in their trading. Do you? View our 2016 forecasts for the British Pound and other major currencies The British Pound finally showed signs of life as it recovered from multi-year lows to finish the week higher versus the Euro and the US Dollar. It was the first week in four in which the GBP rallied versus the Greenback and the first time in eight it gained versus the Euro. What are the odds it will recover further off of recent lows? A relatively uneventful week […]
US Dollar Traders on High Alert Amid GDP, FOMC, Market Volatility
Share This: DailyFX.com – Fundamental Forecast for Dollar:Bullish Through trading at a 12-year high, the USDollar Index has struggled to make meaningful progress While uncertain risk trends remain ahead, a horde of event risk ahead is anchored by a FOMC decision and US GDP See our 1Q 2016 forecast for the US Dollar in our Trading Guides page. Technically, the Greenback (USDollar specifically) has advanced for fourth consecutive weeks through Friday’s close. That’s an impressive run especially considering it is marking serial, 12-year high closes. That said, the run is virtually devoid of conviction – which is momentum from a price perspective. The lift the currency has found to its present lofty level was founded mainly through monetary policy, and the premium it afforded has been largely absorbed. Yet, that doesn’t necessarily mark the end of the bulls’ control. A divergent rate bearing will be revived with a range of rate decisions led by the Fed’s meeting. What’s more, the stronger the push of all those catalysts tracing back to risk trends; the closer the market comes to unleashing the Dollar’s haven appeal. As has been the case throughout January, this past week’s primary focus was the ebb and flow of global risk appetite. A rebound for equities, Yen crosses and other sentiment-benchmarked assets through the second half of the week allowed investors catch their breath. There seems limited catharsis in this correction though as the level of volatility in the markets keeps both short-term tactical traders and long-term buy-and-hold investors on the sidelines. The Dollar is a well-known haven – one of its defining traits. Yet, it hasn’t exploited that status in 2016’s broad market slide. The safety standing remains, but its sensitivity has been warped by the same driver that afforded its gains over the previous years. The anticipation – and later realization – of Fed hikes led speculators to crowd in ahead of higher, competitive yields moving forward. That also, however, made the USD a carry currency. It wasn’t for the actual carry itself, but frontrunning the flood of capital that comes with interest rate changes. That is an important caveat as we are unlikely to the same degree of carry unwind as say with the AUD, NZD or high-yield emerging market currencies. Yet, that is also a buffer to its safety appeal. In a market looking to unwind return-centric exposure (‘risk aversion’), there is first a need to sell the risky exposure and then there is a transfer of capital to a haven. The Dollar is experiencing both pressures. If the intensity builds though, the limitations of yield chasing in US markets will readily be overwhelmed by a need for liquidity that will seek out the Dollar on the way to US Treasuries, money and cash markets. Intensity of risk aversion therefore matters. There is plenty on the docket that can try its hand at jump starting the volatility wave machine again this week – US 4Q GDP, a slew of rate decisions, important US corporate […]