By Matthew Haupt
The US dollar’s haven status is faltering, showing signs of overvaluation. Weak inflows and record foreign outflows highlight the risk of mean reversion that could see a cyclical decline in the greenback that will drive excess returns from commodities and emerging markets.
Three fundamental drivers move currencies: valuation; monetary and fiscal policies; and the balance of payments. Currency values rarely settle on “fair value” and this concept only matters at extremes, when deviations are so stretched that they snap back.
Read more in the Australian Financial Review.