Dollar weakens tied to U.S. reconsidering AUKUS pact

Investing.com -- Deutsche Bank FX strategists said that that the U.S. dollar is Formal foreign exchange platforms in 2019facing pressure following news that the United States is re-evaluating its participation in the AUKUS defense pact with Australia and the United Kingdom. The bank views this development as significant for the dollar within the context of what it describes as a broader withdrawal of US global leadership.

The potential weakening of geopolitical alignment between the US and its allies undermines foreign capital inflows to the United States, according to Deutsche Bank. The bank noted that the AUKUS reconsideration immediately became a topic of discussion during a recent investor call with Australian investors, highlighting its market relevance.

Deutsche Bank’s high-frequency flow indicators suggest an effective "buyers’ strike" on US assets in recent weeks. This pattern helps explain why a rebound in US equities, primarily driven by domestic retail investors, is coinciding with continued weakness in the US dollar.

The European Central Bank released its annual report on the euro, which emphasized that Western geopolitical alignment has played a key role in attracting US inflows over the past decade. This underscores the relationship between geopolitical partnerships and currency strength.

Deutsche Bank also highlighted Taiwan’s significance in the current dollar dynamics, noting that Taiwanese investors hold substantial long-dollar positions. With the Taiwanese dollar (TWD) experiencing another large move, the bank suggests global pension funds and life insurers are closely monitoring how the unwinding of this dollar imbalance unfolds.

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