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Strategies & Market Trends : John Pitera's Market Laboratory
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To: Raymond Duray who wrote (4330)8/3/2001 12:31:09 PM
From: Moominoid  Read Replies (1) of 33421
 
Since capital generally flows to the currency with the most attractive fundamentals

To some degree but also to the one people think will go up (or not down at least). Euro definitely looks more attractive than the Yen though. Aussie dollars look good too :) Was reading there was strong foreign buying of Aussie stocks in the last week as the AUD rose a couple of cents.

I'm curious as to how you would define equilibrium?

I was thinking about purchasing power parity - so that a give amount of money has the same buying power in every country. On the whole developed country currencies trade high relative to PPP and developing countries low. And Switzerland highest of all :)

For example the Aussie Dollar PPP is probably around 70-75 US cents (at least - going by the fast food indicator a lot more than that). Currently the exchange rate is 51.5 US cents.... The Aussie seems historically to trade a little below PPP relative to other developed economies.

Once upon a time trade was the main driver of exchange rates and the capital flows followed them. So the capital exporters (Europe) has high exchange rates (relative to PPP) and the importers (US, Australia, developing countries) had low rates.

Now everything is mixed up!

David
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