31 stycznia 2018

Za spadkami dolara stoi relokacja aktywów

Tak twierdzi Scotia Bank. Bank odnosi się do spadków od listopada 2017. Wskazuje na korelacje dolara z rentownościami papierów skarbowych nienotowanych w USD.

US bond yields continue to climb, with the 10-year rate reaching 2.73%, the highest since April 2014. Long—and short—term spreads have moved more supportively for the USD on the face of it in recent weeks but the USD has failed to benefit. Spot markets are detaching themselves from our spread-based fair value models in a fairly significant manner, suggesting that normally reliable fundamental drivers are having less impact on FX performance at the moment. That suggests to us that some of the recent weakness in the USD is being driven by flows, possibly reflecting a broader asset reallocation away from the USD. 

Spreads, or rate differentials, are usually an important driver of FX performance, reflecting the fact that the carry trade—buying higher-yielding currencies and funding that position via a short in lower-yielding currencies—has been a reliable money making strategy in the past. Carry trades have been less popular (and less lucrative) as a strategy in the low-yield environment that has persisted in recent years but the fact remains that rate spreads provide a useful guide to FX performance—usually. That was the case for the USD through much of 2017, when rising yields outside of the US pressured the USD broadly. The chart (upper right) shows the DXY index closely tracking the narrowing rate spread between the USD and the component currency yields (weighted according to the DXY) closely through much of last year—and spreads even providing a platform for the USD to rebound in Aug/Sep as US yields picked up more quickly and rate differentials widened back in the USD’s 
favour. However, there appears to have been a clean break with spreads and the USD generally late in Q4 of 2017 as rising US bond yields manifestly failed to keep lifting the USD. 
Instead, it would appear that investors and markets have been more taken with rising yields outside of the US—nominal yields ex-US bonds have correlated a lot more closely with the USD’s broader performance. We confess to being at a bit of a loss to explain this development at this point but we suspect that these developments reflect a broader asset reallocation trade away from the USD and towards other developed market currencies. We note that the latter part of last year had some potentially unsettling developments in the US—a change in leadership at the Fed after a protracted selection process plus a serious turn of events in the Russia probe. 
Also, the collapse of the “Jamaica coalition” talks in Germany after the election gave way to hopes that Chancellor Merkel could revive the “Grand coalition” with the SPD, easing away the last major political risk of an event-filled year for the Eurozone. 

Our fair value model for the DXY, which utilizes a multi-linear regression with the dollar index and DXY-weighted 10-year bond spreads has shown respectable tracking with the index’s performance in the past (R2 of 79%, using daily data points since 2011). Since mid 2017, the tracking performance has deteriorated significantly (R2 of 22% from mid-2017 to date). The DXY is now more than 3 standard deviations below our estimated fair value. This is the largest deviation from estimated equilibrium since 2011. 

Ordinarily, a significant deviation from our equilibrium estimate would prompt us to look for a counter-trend trade. The deviation in spot is so significant and so persistent that we are reluctant to fade the USD slide at this point—even though there are other “warning signs” (such as extreme net long EURUSD positioning) that we would typically leverage to form a view in these sorts of situations. We—like the market are in no hurry to buy the USD dip at the point and we are more inclined to go with the trend for the moment. Sometimes, flows and technicals dictate the trade.



EUR/USD is the MOST out of sync with rates spreads, positioning data and relative central bank liquidity since 2014. 

The question is, how big can this crocodile mouth pattern grow in coming months, before something has to give in?

3 komentarze:

    Recent US dollar weakness has many causes—but the Trump tax cuts and a more hawkish Fed should boost the greenback’s attractiveness in the coming months.

  2. FX: USD rebound should not last long
    The knee-jerk reaction to the Fed has been a higher US dollar but we expect this positive effect to fade soon


  3. https://www.cnbc.com/2018/02/02/china-currency-yuan-the-rmb-isnt-near-overtaking-the-us-dollar.html


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