Market Thinking

making sense of the narrative


Tag: currencies

People versus Systems

There is an old (and valuable) piece of advice that says never send an angry email at night and many is the time that a ‘rant’ about something has sat on the ‘draft’ pages of wordpress until the following morning, Read more…

Aussie Dollar moves from Commodity to Currency

The following is based on an article submitted to the Australian Financial Review for this weekend. As such it obviously has an Australian angle, but one that is also important for investors understanding how the new RCEP trade bloc is Read more…

Rotations and Trend Changes

The $ has lost momentum, as have the major $ bond indices, all of which have had a tremendous run year to date, suggesting profit taking as year end starts to come on the radar. Also very interesting to note the continued unwind of the momentum over value trade in Equities (click on header for more)

Making sense of currencies

The following post is a long form read about the principles of Market Thinking as applied to currencies. The short take-away is that most of the market’s mental models about currencies arise from a combination of theory and practical experience of the boom/bust behaviour of emerging markets over the last 75 years. Taken as snapshots, these models can appear confusing and contradictory; sometimes growth is good for an exchange rate, other times bad. Sometimes it is all about the current account, other times it doesn’t matter at all and only interest rates are important. Other times none of it seems to work. Not only do we try to make sense of which narrative works when, we also note that most developed market exchange rates move within a + or minus 10% range which means limited real world impact. And this includes Sterling over Brexit. Moreover, despite frequent attempts to treat China as an emerging market for FX purposes, it refuses to behave as such, leading to multiple failed narratives here too. (click on header for more)