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Research Team at Deutsche Bank, suggests that over the past month, carry
has turned into the primary market driver, attributable largely to the
outperformance of the Antipodean high-yielders.
Key Quotes
“Trendiness remains at moderate levels in G10 across all dollar crosses. In the detail, accelerating momentum in AUD and CAD was offset by the abrupt trend break in EUR. The common currency also accounts for much of the modest rise in volatility, which by contrast has fallen rapidly in CAD. Volatility in JPY is approaching historical lows.”
“AUD outperformance has also been helped by the re-pricing of the monetary policy outlook. These market drivers continue to dominate macro themes. The outperformance of the Antipodes relative to NOK and EUR in particular defies the asymmetry in these blocks’ current account balances and inflation pulses.”
“In EM, trendiness has not shown any improvement while volatility has marginally declined over the last two weeks. Similar to G10, however, there has been a rise in uniformity as the EM FX complex responds to broad global drivers such as Fed pricing and commodities.”
“In contrast to G10, equity performance continues to be highly correlated with FX performance in a broad-based fashion, though PLN is a particularly influential cross. The correlation with carry has flipped back to the normal, positive sign. Relative to three months ago, the high-yielders BRL and TRY have had some respite at last. RUB’s problems with sovereign risk also now seem relegated to the past. Macro variables have exerted little influence on price movements. External balances and inflation rates display no systematic relationship with FX performance. Apart from the relevance of equities, EM FX is gradually converging with the market-driven regime prevailing in G10.”
Key Quotes
“Trendiness remains at moderate levels in G10 across all dollar crosses. In the detail, accelerating momentum in AUD and CAD was offset by the abrupt trend break in EUR. The common currency also accounts for much of the modest rise in volatility, which by contrast has fallen rapidly in CAD. Volatility in JPY is approaching historical lows.”
“AUD outperformance has also been helped by the re-pricing of the monetary policy outlook. These market drivers continue to dominate macro themes. The outperformance of the Antipodes relative to NOK and EUR in particular defies the asymmetry in these blocks’ current account balances and inflation pulses.”
“In EM, trendiness has not shown any improvement while volatility has marginally declined over the last two weeks. Similar to G10, however, there has been a rise in uniformity as the EM FX complex responds to broad global drivers such as Fed pricing and commodities.”
“In contrast to G10, equity performance continues to be highly correlated with FX performance in a broad-based fashion, though PLN is a particularly influential cross. The correlation with carry has flipped back to the normal, positive sign. Relative to three months ago, the high-yielders BRL and TRY have had some respite at last. RUB’s problems with sovereign risk also now seem relegated to the past. Macro variables have exerted little influence on price movements. External balances and inflation rates display no systematic relationship with FX performance. Apart from the relevance of equities, EM FX is gradually converging with the market-driven regime prevailing in G10.”
