The Unlikelihood of 'Secret' Currency Meetings

In our work, we have argued that the dollar is having its third significant rally since the end of Bretton Woods.  The first rally was associated with Reagan though it began under Carter and followed 100 bp hike by a new Federal Reserve Chairman (Volcker). 

On a real broad trade-weighted basis, the dollar appreciated by more than 50% over the seven years and in 1985, the G7 met at the Plaza Hotel in NY and agreed to coordinate intervention to drive the dollar lower.   

Do You Believe the Dollar has Peaked?

The cry that the dollar has peaked is gaining ground.  We are not convinced.  The macro-fundamental case remains intact.  Divergence between the US and other high-income countries continues, even if at a more gradual pace than the Federal Reserve expected a few months ago.

Speculators' Position Adjustments Were Small Ahead of the ECB

The Commitment of Traders reporting period ending March 8 showed little position adjusting ahead of the ECB meeting two days later.  A little more than 3/4 of the gross positions we track saw less than 5k contract change and only two were above 6k. 

The gross long speculative sterling position was cut by a quarter or 9.6k contracts to 29.4k.  Speculators also built a larger gross long Australian dollar position, adding 9.7k contracts to 86.1k.

After the ECB, the FOMC is Up Next

The reversal of the US dollar's gains half way through Draghi's press conference has undermined the near-term technical tone.  The risk is on the downside, at least in the first part of the week, ahead of the FOMC meeting. 

Loonie Update: Unshakable

The Canadian dollar's advance continues.  Neither the widening of interest rate differentials in the US favor nor a poor employment report has managed to buckle the Loonie. Oil and the general risk-on mood trump the other concerns.

In addition, investors are concluding that fiscal stimulus will reduce the possibility of additional monetary stimulus.  The implied yield on the June BA futures is now the highest since last June.

Is Improving Gender Equality on Wall Street the Key to Fewer Market Crashes?

While the scenes depicted in the film The Wolf of Wall Street might be extreme, they do reflect a truth: that the world of finance is overwhelmingly male. It is this male-dominant culture, fuelled by testosterone that has been blamed by regulators, academics and the popular press for instability and crashes in the financial markets. Moreover, with reason.

The Loony Loonie

The Canadian dollar appears vulnerable.  It remains firm while the US two-year premium over Canada has risen sharply.   Like others, we do not expect the Bank of Canada to cut rates today and are looking past it. 

This Great Graphic was composed on Bloomberg.  It shows the 2-year spread (white line) and the US dollar against the Canadian dollar (yellow line).  We use two different scales, but the point is not so much how precise they have tracked each other.  With two different scales that is misleading. 

Third Dollar Rally is a Charm

We argue that the dollar is in its third significant rally since the end of Bretton Woods in 1971.  The Reagan dollar rally was driven by the policy mix of tight monetary policy and loose fiscal policy.  The G7 effort to stop the dollar's appreciation at the Plaza Hotel in September 1985 marked the end of the Reagan dollar rally.

Safe Haven Assets in Financial Markets

Over the last decade, we have seen several instances where most market investors have been caught off-guard and surprised by new developments.  Most notably, the stock market events of 2008-2009 were some of the most significant in recent memory -- and this has led many investors to feel skittish when looking to establish new investment positions.

Short Currency Exposures are Trimmed (Except the Euro and Pound)

Speculators in the currency futures made mostly small adjustments to their gross foreign currency exposure.  There were only three position adjustments of more than 5k contacts. 

Since the markets turned on 11 February, the Canadian dollar has been the strongest of the major currencies, appreciating a little more than 4.5% against the US dollar.  Gross shorts have been nearly halved since then.  They were cut by 6.9k contracts or about 10% to reach 61.5k contracts during the recent reporting period.