Implementing an aggressive policy mix in 2020 to support the world economy could prove to be a „game changer“ for the US dollar, since it will find itself facing three potential headwinds, the second of which is very negative real rates resulting from the fall in short rates to zero, which occurred in February and March 2020, and the purchase of assets that keep long rates low. Currently, US 10 year real rates stand at -0.7% vs 0.4% for Canada and 1% for Australia. Investors have been used to seeing the US Dollar as a „carry“ currency, supporting its valuation. We think this factor is a thing of the past.
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