The usual suspects are appearing in the FX market, Japan and Switzerland. Both countries are net lenders and have started to see money move back home. In times of crisis, the home bias exists. The countries hurt by this move have been the high interest rate low growth countries like Australia and New Zealand.
However, the flight to quality also extends to the dollar, the epicenter of the financial crisis. As a reserve currency, the US is still considered a safe haven by many investors. We can only infer this because we do not have the direct purchase of assets by foreigners for August. Unfortunately the latest data on foreign buying only goes through July and it shows weak buying through July and most of the purchasing coming from central banks. This was a time time of high uncertainty concerning what action would be taken for Fannie and Freddie.
The proactive engagement of the government with the crisis has created dollar demand and a level of irony. The country that has the biggest problems and most risk may have less uncertainty because the size of the issues have been clearly presented. It is dirty laundry but it is being aired and dealt with. Moral hazard is alive and well but this may protect some markets in the short-run.
Granted there is still a fair degree of uncertainty, but the information on the crisis may be more readily available. Additionally, the government is providing support through the Fannie and Freddie bail-out, the involvement of Fed through taking different collateral, and the active engagement by the government in finding partners for failing institutions. In the short-run, this has been dollar positive relative to the rest of the world.
In this crazy credit world, the dollar may still be a safe haven for international money even with the crisis swirling in New York.
However, the flight to quality also extends to the dollar, the epicenter of the financial crisis. As a reserve currency, the US is still considered a safe haven by many investors. We can only infer this because we do not have the direct purchase of assets by foreigners for August. Unfortunately the latest data on foreign buying only goes through July and it shows weak buying through July and most of the purchasing coming from central banks. This was a time time of high uncertainty concerning what action would be taken for Fannie and Freddie.
The proactive engagement of the government with the crisis has created dollar demand and a level of irony. The country that has the biggest problems and most risk may have less uncertainty because the size of the issues have been clearly presented. It is dirty laundry but it is being aired and dealt with. Moral hazard is alive and well but this may protect some markets in the short-run.
Granted there is still a fair degree of uncertainty, but the information on the crisis may be more readily available. Additionally, the government is providing support through the Fannie and Freddie bail-out, the involvement of Fed through taking different collateral, and the active engagement by the government in finding partners for failing institutions. In the short-run, this has been dollar positive relative to the rest of the world.
In this crazy credit world, the dollar may still be a safe haven for international money even with the crisis swirling in New York.
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