Meanwhile, Here's Something To Read On Safe-Haven Currencies In A Time Of USD Crisis

Australian Dollar

Photo: Cimexus, Flickr

Bored while you wait for the House to do something?This is from the latest FX Pulse, which is titled FX Shelter From The Sovereign Risk Storm, a piece that basically looks at the incredible runup in commodity currencies (Kiwi, Aussie, Canadian Dollar) as investors avoid the dollar.

They’re sceptical it can last much longer:

However, this is not the first time commodity currencies have acted as safe haven destinations. In 1995/96 and 2002/03, we did see commodity currency safe-haven bids. Ironically, the 1995/96 commodity-currency bloc outperformance coincided with the US government shut-down during the President Clinton – Newt Gingrich standoff. 2002/03 did see US accounting scandals coming on the heels of the previous recession, and heavy USD-negative intervention. Parallels to the current environment are obvious. Nowadays, central banks are again selling USD’s – moving funds into the commodity bloc.  

We wonder how long central banks will offer USD’s, and we link the answer to the evolution of local Asian inflation rates and the strength of the global economic cycle. Once global growth rates fall and Asia’s import price cycle eases off or converts into domestic price pressures, local central banks’ motivation for selling USD’s will ease, which then will also ease the safe-haven bid for commodity currencies. Currently abandoned correlations will likely snap back. 

As for evidence that the Aussie has gotten clearly ahead of itself, this chart shows the clean break its made with commodities:


Photo: Morgan Stanley

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