Forex Flash: Increased flows into US assets need to justify deficit – ANZ

With the US current account deficit being almost entirely funded by Treasury flows in recent years, the USD has been among the largest beneficiaries of the dive into fixed income since 2008. Certainly there has been some ‘diversification’ into other countries’ bond markets, but we cannot recall another individual case where fixed income flows have been such a dominant part of the capital account. However, “With the external deficit still wide, flows into risky assets in the US (equities, corporate bonds and government corporate bonds) would need to return to pre-crisis levels, or even tech-boom type levels, to justify a risk-on style broad dollar rally.” suggests the ANZ Research Team.