The strength of the US Dollar over the past three months is well documented by most market commentators and Twitter contributors. In the past, a strong US Dollar has had many ramifications for other asset classes, but what is actually happening in the currency markets?
The Dollar index is a basket of trade weighted currency crosses, which is heavily weighted towards the Euro. With the Euro/Dollar falling from 1.40 in May, to current 1.27 levels, it is plain to see why this index is moving strongly out of its 80 trading range. One obvious reason is that as soon as the Campbell family finished its European sabbatical, at vast Euro cost, it started weakening!
However, most countries focus on all their internal issues when their currencies start weakening. This appears to be universal Dollar strength and nowhere better to see this is in the Aussie and Kiwi Dollar crosses with US Dollar.
A real issue for asset allocators is that the last time we had these sorts of trends developing in USD vs. AUD and NZD was an early indicator in 2008. On a lighter note, we also look at the Rand and Argentina Peso, to give some indicators that this has nothing to do with form in the Rugby Championship!
