10 Mar 2016
Dissecting the dollar bloc – TDS
Research Team at TDS, notes that the sharp drop in commodity prices in the last year triggered significant corrections across the dollar bloc.
Key Quotes
“We test the dollar bloc currencies on a host of different measures to benchmark relative value. We focus on high-frequency data, medium-term valuation, and market positioning for our analysis.
The medium-term macro backdrop argues that divergence should persist in the dollar bloc over the next few months. Besides the links to China, external deficits should also get attention in this group. In a world of higher volatility, less liquidity and rising risk premiums, external deficits still matter. The average current account deficit for the dollar bloc is close to 4.0%, but this masks the expected deterioration across countries over the coming year.
Our results show CAD has been the strongest macro trade thus far in 2016. We look for a recoupling to the macro themes for AUD and NZD in Q2, though. Our favorite trades from this exercise are long AUD/ NZD and short NZD/CAD, AUD/CAD.”
Key Quotes
“We test the dollar bloc currencies on a host of different measures to benchmark relative value. We focus on high-frequency data, medium-term valuation, and market positioning for our analysis.
The medium-term macro backdrop argues that divergence should persist in the dollar bloc over the next few months. Besides the links to China, external deficits should also get attention in this group. In a world of higher volatility, less liquidity and rising risk premiums, external deficits still matter. The average current account deficit for the dollar bloc is close to 4.0%, but this masks the expected deterioration across countries over the coming year.
Our results show CAD has been the strongest macro trade thus far in 2016. We look for a recoupling to the macro themes for AUD and NZD in Q2, though. Our favorite trades from this exercise are long AUD/ NZD and short NZD/CAD, AUD/CAD.”