USD: Shifting Correlations Of FX; USD Reserve Status & Equity Flows In Focus – TD

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With US lawmakers expected to pass stimulus legislation next week, what is the outlook for the US dollar?

TD Research discusses the current drivers of the FX markets.

Here is their view, courtesy of eFXdata:

“Expectations of further stimulus bets have sparked a turnaround Tuesday, undermining the USD once again. The catalyst falls to the prospects that US policymakers have made some progress on stimulus discussions. The hopes are that legislation will pass next week, which has offered another dose of fuel for risk sentiment.  Meanwhile, gold has marked new highs while the EUR sits within striking distance of 1.20,” TD notes.

“We discuss the shifting correlations of FX to our risk gauge GMRI, highlighting the shifting nature of a safe haven. It will take years to officially challenge the USD’s reserve status but that doesn’t mean we can’t see a major asset allocation shift. Equally important, we note the surge in the USD’s beta to MSCI World (ex-US) during the past four years. A sign that equity flows will remain important drivers of FX,” TD adds.

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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