The US dollar was the top performer this week
The US dollar rebounded this week. Unfortunately it wasn’t due to surging US fundamentals or an upbeat outlook. Instead it was a result of risk aversion and dollar inflows especially on stumbling emerging markets.
Along with that, the yen and Swiss franc joined the US dollar at the top of the heap.
“ We reduce exposure to EM. We turn to a defensive stance, buying JPY which could benefit from repatriation flows if risk appetite falls. The EM rally has reduced the attractiveness of EM valuation as positioning has turned long EM,” Morgan Stanley wrote in a note today.
The bottom of the pile was the commodity currencies. The Canadian dollar got a respite from strong data on Friday but poor data and dovish central banks torpedoed the New Zealand and Australian dollars.
The AUD/USD chart today is an interesting one. It broke below the late-January low briefly but is back above. That level is 0.7076 and it’s one to watch into the close.