CITI: Month-End FX Hedge Rebalancing: October 2016 Preliminary Estimate

From the FXWW Chatroom: The preliminary estimate of month-end FX hedge rebalancing flows points to moderate USD buying and selling of all other currencies on Monday, 31 October.
·       Both US bond and equity indices have declined month-to-date, leaving foreign investors slightly over-hedged on their US assets. This means that they will need to buy USD to bring their FX hedges in line with the value of assets.
·       The dominant position of US assets in international portfolios and higher hedge ratio assumptions for non-US investors mean that the USD buying signal persists even against currencies where local assets have also done badly, e.g. Switzerland, Australia and New Zealand.
·       Japanese equities and bonds have out-performed most other markets this month and this strengthens the signal to sell JPY as foreign investors in Japanese assets will also need to increase their JPY hedges.
·       There are no major data releases scheduled ahead of the 16:00 London time fix on Monday, 31 October. Because the UK will move off Daylight Saving Time on 30 October, a week earlier than the US, the month-end fix will fall at 12:00 EDT this month as opposed to the usual 11:00.

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