USD Bolstered by Robust TIC Flows, Price Action Remains Tied to Fed
- Total TIC flows measured an inflow of $42 billion, a substantial uptick from September’s -$29.2 billion
- Long-term flows read $31.3 billion in inflows, a moderate increase from $30.8 billion in September
- The Dollar enjoyed a slight bump from the report as it reflects continued demand for US exposure amid a volatile equity rout
Net Treasury International Capital (TIC) flows released Monday revealed $42.0 billion in fresh capital entered the United States in October. This contrasts September’s reading of $29.1 billion in outflows. TIC flows reflect the cumulative purchase and sale of stocks, bonds and monies between the US and other countries over a given period. Thus, robust inflows bode well for the Greenback as TIC flows are a major component of America’s capital account and drive demand for US Dollars.
On that note, foreign residents decreased their holdings of long-term US securities by a net $6.5 billion but increased their total holdings of US exposure by $84.1 billion. Conversely, net foreign official outflows read $42.1 billion. As with previous months the two largest foreign holders of US denominated debt, China and Japan, altered their holdings slightly but fell within the normal range.
The sell-off from foreign officials was not enough to outpace the significant demand from foreign private holdings even as a volatile stock market wreaks havoc on return expectations. That said, TIC data is a lagging indicator which leaves any impact of December’s equity rout unrepresented in Monday's report.
US Dollar Basket Price Chart (DXY) 10-Minute, December 17th
While TIC flows can have a material impact on movements in the DXY, it is important to keep in mind that global investors recently fleeing from equity risk combined with multiple central bank decisions this week likely overshadowed Monday’s TIC data.
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Consequently, the Dollar’s reaction was minimal as it looked to recoup some losses late in the trading day. As the week progresses the Dollar will continue to look to Wednesday’s Fed decision and press conference.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX