00:00 Speaker A
I thought your comments Gentlemen on the dollar were interesting where you call for a structural decline in the US dollar next year. How to Kamrage? Why does the dollar weaken even when the economy remains resilient?
00:15 Kamraj
Well, I think this is the bit. I mean, if you look at the FX markets, it’s all about the smile of the dollar. You need dollar exceptionalism or you need the world to really fall off a cliff to get into that strong dollar. Once you’re in the middle area, uh of, you know, whether it’s decent growth, whether it’s overall resilience, whether it’s relative stability, that tends to be a market that’s just engineered for a bit of lower dollar. So I guess that’s one side of things. I think that’s the overall growth of the area, the overall risk sentiment where we’re probably going to be settling on average over the course of the year.
00:54 Kamraj
I think that the other side, while I think that the Fed can continue to reduce, I think that the conversation during the next year for the ECB, for the Bank of Canada, for the Reserve Bank of Australia, a number of other central banks will be when it is time to start walking. They gave a significant amount of reduction during this year while the Fed was patient.
01:17 Kamraj
They can sit there on pause, they can sit there and start thinking about when the draws can come later next year. You know, and it might just be the ECB, but I think the conversation will be one-sided. This allows interest rates outside the world to push a little higher, a little more supported, and allows interest rates in the United States to come down. So it gives you a differential in the interest rates that are giving you a weaker dollar overall.
01:40 Kamraj
You know, I do push back. I think there is this issue of debasement of the dollar and de-dollarization. I think I probably overdid it a bit. What we’re actually seeing is a very structural change in the hedging markets in terms of what’s going on and how people are looking down. So I think there is a lot less selling of US assets than people let on. I think at the margin where they want to buy new assets, they’re certainly moving away from dollars that they might have bought in the past in other areas. But I think in general, they tend to hold on to assets but hedge some of the risk. And as the Fed lowers interest rates, hedging costs go down and you can get more hedging and that in itself can support a weaker dollar as well.