The race among central bankers to be the biggest dove continues unabated (including Draghi’s efforts today), and as a result , a low-risk return on capital has become even more difficult for investors. There aren’t many major currencies whose central bank wouldn’t be happy to see a decline, and while Draghi was careful to mention that the exchange rate was not a policy target as such, we all know which direction would make him happier.
As mentioned earlier the search for yield has resulted in added demand for the higher yielding currencies like AUD and NZD. There has also been demand for precious metals which have been under the cosh for some time. It’s not that there is a fear of a return to high inflation, but now that the era of negative interest rates is upon us, it’s just difficult to find a home for cash.
The central banking authorities of neither Antipodean wants a higher currency, but it’s hard to see what they can do about it.
One thing is sure, we have not seen an end to the race to the bottom for currencies. In the absence of a clear “loser” though, does that mean FX trends will become necessarily shorter term as the contenders jostle for that last place?
