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Talking Points:

  • Total net TIC flows read in at $108.2 billion versus $52.2b in July and the expected $60.3b
  • Long-term net TIC flows totaled $131.8 billion versus July’s $74.8b, a significant increase
  • The two largest foreign holders of US debt marginally reduced their holdings

The US Dollar traded sideways Tuesday afternoon following the release of Treasury International Capital (TIC) flows for August. TIC data tracks the total flow of stocks, bonds and money market funds to and from the United States and is presented as total flows and long-term flows. Total net flows totaled $108.2 billion while long-term net flows totaled $131.8 billion. Compared to July’s TIC flows and in other recent months, August’s data suggests demand for US exposure remains robust. Still, there some notable parties reduced their holdings.

China and Japan, the two largest foreign holders, again reduced their exposure in August. China minorly reduced their exposure by $5.9 billion to $1.165 trillion. Despite three consecutive months of reduced exposure, the negligible outflows fall short of providing sufficient evidence to suggest that China is enacting the sale of US debt as a trade war tool. Should the outflows continue or increase in size, the threat of retaliation in this form may rise.

Catch up on the history economic conflicts with A Brief History of Trade Wars.

The second largest holder, Japan, also reduced their holdings. August saw Japan's long-term security exposure fall from $1.036 trillion in July to $1.03 trillion. Again, the flows are largely within range and were counteracted by increased holdings from Brazil, Saudi Arabia, and Ireland. Further, net long-term purchases from foreign residents totaled $77.1 billion in August.

DXY Price Chart 5-Minute, October 16th

USD Unmoved Following Robust August TIC Data

Leading up to the release, the Dollar basket was mounting a climb above 95.00 after suffering losses last week in tandem with the equity rout. The data had no immediate impact on the Dollar as it crossed the wires, but will likely impact sentiment for treasury demand and offer insight into the US-China trade war.

DXY Price Chart 30-Minute, October

USD Unmoved Following Robust August TIC Data

Consult our Economic Calendar for other important events and data releases due this week.

Another important commentary on the USD and US economy is due tomorrow in the Fed’s September minutes. The Fed’s remarks regarding inflation could add further volatility to either the Dollar or equities, which staged a stellar rebound on Tuesday as the Dow added 547 points.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

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DailyFX forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.