Market Analysis

Casting A Wide Net

Friday’s US Personal Consumption Expenditures (PCE) data, the Fed’s preferred gauge of inflation, may give markets a better steer on the prospects for US interest rate moves, but separate to that, from a currency market perspective, it has to be worth knowing which countries are potentially more susceptible to changes in US interest rates due to their exposure to US dollar-denominated debt. Recent data from the Bank for International Settlements (BIS) shows that the global appetite for US dollars remains unsated. From a currency perspective, the BIS also helpfully provided, as reported by Bloomberg, a useful guide to US dollar-denominated non-bank debt as a percentage of gross domestic product in those countries tracked by the BIS.

Traders might be surprised to know that the US dollar debt obligations of non-banks in Mexico equate to 24.6 per cent of the country’s GDP, while in Turkey it is 23.5 per cent. Of course Mexico has energy sector-related US dollar earnings although Turkey doesn’t have that luxury. Either way, traders might infer from the BIS data that the Mexican peso (USDMXN) and the Turkish lire (USDTRY) could be more sensitive than other currencies to changing perceptions of Fed rate expectations, and by extension to Friday’s PCE data.

Written by Neal Kimberley, External Currency Analyst.