"On a 12-month horizon our FX forecasts imply a 2% weakening in the trade-weighted USD. Part of the rationale for this view, besides our belief that the Fed continues to 'out-dove' other central banks (notably the ECB), stems from the weak BBoP, reflecting the fact that ongoing large current account deficits continue to hold the Dollar hostage to portfolio inflows. Against this backdrop, we update our monthly BBoP measure for the Treasury International Capital (TIC) data through June. 2012).
The TIC data measure long-term portfolio flows into and out of the US. They capture foreign buying of US Treasuries, agency and corporate debt, and stocks. In addition, they reflect US buying of foreign stocks and bonds. As we have argued previously, we see private inflows to the US (as opposed to official purchases of US securities by foreign entities) as a driver of USD strength, as it is these flows that are driven by market-based investment decisions.
The 12-month rolling private non-UST BBoP has deteriorated from a deficit of -3.7% of GDP in December 2012 to -4.5% of GDP in June 2013, a drop of 0.9 percentage points. This level is still quite a bit above the all-time low in November 2011 (-5.6%), when large safe haven flows into US Treasuries (around the possible Greek exit referendum) crowded out flows into other US assets. What is striking, though, is that the deterioration year-to-date has been at a similar pace as during 2011.
Overall, the US flow picture has continued to look surprisingly weak, even as sentiment has shifted to be fairly broadly USD bullish. What is especially notable is that foreign flows into US equities have been weak, when during previous USD strength episodes – most notably in 2000/01 – these inflows were very strong. Much as in our analysis on speculative positioning, hard data tend to paint a more cautious picture than sentiment."
Robin Brooks, Goldman Sachs.
The 12-month rolling private non-UST BBoP has deteriorated from a deficit of -3.7% of GDP in December 2012 to -4.5% of GDP in June 2013, a drop of 0.9 percentage points. This level is still quite a bit above the all-time low in November 2011 (-5.6%), when large safe haven flows into US Treasuries (around the possible Greek exit referendum) crowded out flows into other US assets. What is striking, though, is that the deterioration year-to-date has been at a similar pace as during 2011.
Overall, the US flow picture has continued to look surprisingly weak, even as sentiment has shifted to be fairly broadly USD bullish. What is especially notable is that foreign flows into US equities have been weak, when during previous USD strength episodes – most notably in 2000/01 – these inflows were very strong. Much as in our analysis on speculative positioning, hard data tend to paint a more cautious picture than sentiment."
Robin Brooks, Goldman Sachs.
regards,
oscarjp
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