FUNDAMENTAL ANALYSIS


A strong Dollar and static current account deficit has acted as a bit of a headwind to global growth since 2012


There is now a new policy divergence between the Fed and the rest of the world that should be very supportive of the Dollar


FX


We see the best opportunity in bullish US Dollar trades against emerging market and commodity currencies


by Stewart Richardson


Central Bank Policy Divergence The Impact of the Dollar


This article covers a somewhat US Dollar centric view, but one that we think is important in understanding how the world works, as there is an obvious policy divergence again between Fed policy and that of all other developed economy central banks, one that should be very supportive of the Dollar in the months ahead.


In a previous article “Oil and dollar dominate thoughts as we wait for Italy to decide” we discussed the concept of how important it is for the US to “export” Dollars to the rest of the world. With a huge amount of global trade still


conducted in US Dollars, in order to continuing growing their economies, the rest of the world needs an ever increasing stash of Dollars. In that report, we showed Chart 1 (courtesy of MI2 Partners) to illustrate how the US current account


deficit was effectively the source of Dollars prior to the crisis. Te chart also illustrates how the Fed’s balance sheet expansion helped bridge the gap when the US current account deficit failed to increase during the post crisis recovery.


FX TRADER MAGAZINE January - March 2017 33


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