Citi – Month-End FX Hedge Rebalancing: April 2017 Preliminary Estimate

From the FXWW Chatroom: The preliminary estimate of month-end FX hedge rebalancing flows predicts small USD selling on Friday, 28th April. This month’s signals are relatively weak, falling below the 0.5 standard deviations threshold.
·       Most G10 equity indices have suffered this month with all but Australia and Canada posting negative returns MTD. On the contrary, most developed market fixed income markets have shown small but steady gains.
·       Looking at the US, we find that the Citi US Government Bond index, with a gain of 0.95%, has slightly outperformed the MSCI US index that fell -0.57%. This may leave foreign investors in US assets with slightly increased asset values and a need to sell USD to realign their hedges based on our assumptions.
·       Interestingly, most other G10 economies decline in equities look to be a dominant driver of rebalancing flows. This would leave US based investors needing to sell USD to bring the value of their hedges back in line with decreased foreign asset values. We estimate this flow to be slightly higher than markets which have seen gains in asset values for US investors. Thus overall we find the net effect this month to be a small net sell of USD.
·       There are no major data releases scheduled come out around or before London time. US Chicago PMI and U. of Michigan sentiment will fall closest to the fix with possible risk also coming from the US debt ceiling deadline.

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