- The multi-year dollar bear market is over. The dollar has been global funding currency of choice for years. But in a globally de-leveraging world, money flows back to the greenback. More broadly, this is global rebalancing done the hard way: through slower US growth, lower US imports and (at best) much slower global FX reserves growth. The US current account deficit shrinks, probably fast; the supply of surplus dollars on which the world has long gorged is cut; and the price of scarcer dollars rises through 2009.
- More rate cuts are clearly coming in UK and the Euro area, very soon. But US rate cuts have also resumed so the net FX effect is hard to gauge. It’s clear that real US bond yields will rise steadily from very low levels, a durable source of dollar support. Most worrying for the EUR is the unilateral, national political response to crisis. Single currency but multiple fiscal policies is a structural weakness for the EUR that only matters at times of acute stress, like now.
- The folly of those carry traders blinded by the Australia terms of trade story is fully exposed as AUD/JPY, the global carry trade ‘benchmark’, is incinerated. As policy makers slowly get to grips with the causes of global market malaise, as we move to and through the US election, and as risk assets start to look more chronically oversold, a call on ceasefire in this FX carry melt-down. Take a deep breath and buy AUD/JPY on dips. Ditto NZD/CHF.
- Local markets were too complacent for too long about decoupling and ultimately have further to adjust, weaker. Early Oct moves in currencies like MXN and BRL have been rapid and forecasts that until recently were deliberately local currency bearish suddenly look bullish! That’s not intentional. But let’s allow the dust to settle a bit before flagging more decisive forecast adjustment.
Dollar Bear Market Is Over
October 15th, 2008 · No Comments
Tags: Forex Market
0 responses so far ↓
There are no comments yet...Kick things off by filling out the form below.
You must log in to post a comment.