Re: Trade Idea Generation. the process of writing and thinking..LETS D
more stuff to ponder, though this surely isn't news to most:
the weak dollar is likely to get weaker beyond what is priced in via interest rate diffs/capital flows.
specifically, the AUD/USD and NZD/USD pairs are undervalued (i.e. should be higher vs. the dollar) as well as the CAN/USD.
both the growth diffs and interest rate diffs favor these pairs as the US current account is still at 6% of GDP and requires an unsustainable inflow of $7bil per working day. the productivity that has reduced the need for a further fall in the dollar has fallen off in the past decade.
i have futher compiled some great data on PPP of those currencies and it seems the USD is overvalued relative to the AUD by 1.81x according to the PPP calculation. however obvious disclaimer: PPP isn't tradable as only a small % of decomposed currency excess returns can be attributed to it (most are interest rate diffs and growth diffs, which are correlated)
i think this just helps to clarify some of the data behind the bets.
Barron
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