Redbacka, nice work as usual.
One thesis popular with #fx and the $usdx is the compounding gains for #FDI (foreign direct investment). That is, you would be stupid to cash in US asset gains while USD is rising. The flipside of this is FDI will turn on a dime to capitalise on weak currencies when a USD selloff comes (down the track). We saw this happen in 2008/09 with wild gyrations in $euro and $aud especially.
RBA data currently shows a 0.25% cash rate drop is imminent. The treasury yield arbitrage offered to FDI players favours AUS and NZD in case brown stuff hits the fan. But for now, with USD rising the demand remains for the much larger US Treasury market.
The FDI flow in response to the shock factor of 2008/09 can be reasoned by way of yield chasers. Something that is occurring again now - and a big reason ECB pulled a column of Abrams out of their rear with the recent 1.2Trn euro QE. My guess is a lot of FDI is parked in the US waiting to exit - hence the dislocation. To a much smaller extent, something similar might be occurring in the ASX.
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- Weekend Charting & Chat - 30th Jan 2015
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