In my view usually the key variable as to why looser fiscal policy lead to a stronger or weaker currency is the CB reaction function (see ECB vs BOJ). Why you think for the CAD it will be priced as higher risk premium rather than a stronger economy/more hawkish CB? Also, curious if you have any view on the renminbi (looking at politics in the west should appreciate meaningfully)
I think its less reaction function of CBs driving currencies - and more markets view that the government will resort to fiscal policy and industrial policy. Politically I agree RMB appreciation looks likely here...
Great piece, Russell. If Trump is successful in curtailing the independence of the Fed, wouldn’t that make your implication even stronger, that currencies now move according to expectations of government policy rather than free market principles?
It feels like politicians are actively reasserting control over technocrats, partly because the technocratic framework has failed to deliver the market stability it promised. Is this reassertion justified?
I try not to think in terms of right and wrong - but politically popular or not... Reagan, Thatcher, Trump were all politically popular - but very different policies....
OK, fair enough. Still, viewed amorally, populism trades institutional stability for volatility and opportunity. Trump, Thatcher, and Reagan fit this pattern more closely than is often admitted. How that shift ultimately feeds through currencies will be interesting, especially given the political premium on short term US optics this year...
On this basis precious metals will increase in value until governments attempt fiscal restraint. As will bitcoin? Should be interesting as this could run for many years.
In my view usually the key variable as to why looser fiscal policy lead to a stronger or weaker currency is the CB reaction function (see ECB vs BOJ). Why you think for the CAD it will be priced as higher risk premium rather than a stronger economy/more hawkish CB? Also, curious if you have any view on the renminbi (looking at politics in the west should appreciate meaningfully)
I think its less reaction function of CBs driving currencies - and more markets view that the government will resort to fiscal policy and industrial policy. Politically I agree RMB appreciation looks likely here...
Great piece, Russell. If Trump is successful in curtailing the independence of the Fed, wouldn’t that make your implication even stronger, that currencies now move according to expectations of government policy rather than free market principles?
It feels like politicians are actively reasserting control over technocrats, partly because the technocratic framework has failed to deliver the market stability it promised. Is this reassertion justified?
I try not to think in terms of right and wrong - but politically popular or not... Reagan, Thatcher, Trump were all politically popular - but very different policies....
OK, fair enough. Still, viewed amorally, populism trades institutional stability for volatility and opportunity. Trump, Thatcher, and Reagan fit this pattern more closely than is often admitted. How that shift ultimately feeds through currencies will be interesting, especially given the political premium on short term US optics this year...
On this basis precious metals will increase in value until governments attempt fiscal restraint. As will bitcoin? Should be interesting as this could run for many years.
It runs until the voting public tire of it... Just as pro-capital deflation policies ran until the voting public tired of it (Brexit, Trump 2016)