According to Bloomberg, the US Dollar’s run up the charts in 2018 may draw to a close as crude oil prices threaten to continue plunging.
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“The past few months the USD has benefited from a US-based carry trade, which rested on low volatility and relative outperformance,” TD’s North American head of FX strategy wrote in a note Wednesday. “The collapse in oil matters in this case since the US is now one of the notable (global) marginal oil producers. It is a growth shock to one of the US’s key growth industries.”
The slump in crude is likely to weigh on the U.S.’s “already challenged” economic outlook and may accelerate a recent trend of investors reallocating investments into money-market instruments, a likely sign of dollar weakness, Morgan Stanley strategists including Hans Redeker wrote in a note. The currency’s inverse correlation to oil should turn increasingly positive over time, they wrote, and they are adding to the short dollar position in their portfolio.
Ten-year Treasury breakevens, which represent investors’ view on the annual inflation rate through 2028, have slid below 2 percent for the first time since January alongside the slump in crude.
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