The current rotation out of US tech stocks should not be mistaken for a US growth problem. It is supported by better global growth prospects, strong relative earnings, and positive PMI data outside the US, which reinforces the case for pro-cyclical positioning in FX markets and other assets.
The resilience of the Australian Dollar and Norwegian Krone amid market volatility stems from strong domestic data like jobs and inflation. This fuels hawkish central bank expectations, decoupling their value from being simple commodity-linked currencies and highlighting the importance of internal cyclical strength.
The usual seasonal trend of a weaker Chinese Yuan after the Lunar New Year may not materialize. Ongoing trade negotiations with the US could incentivize Beijing to maintain a stable or appreciating CNY as a potential bargaining chip for tariff relief, overriding typical seasonal flow dynamics.
Historical precedent suggests that in a positive growth environment, a geopolitical shock like a potential US-Iran conflict might not lead to a sustained risk-off rally in the US dollar. Markets may price out the risk premium quickly, allowing pro-cyclical trends to resume, as seen in a similar event last year.
The typical positive correlation between Japanese interest rates and the yen can flip to negative. This occurs when a fiscal risk premium is the main driver of both markets. Once fiscal concerns ease, as they have recently, the correlation reverts, explaining why a stronger JGB market has not led to a stronger yen.