Ellerston Capital head of fixed income and multi asset, Vimal Gor joins The Business to explain what’s behind the weakening US dollar, and why some are questioning its status as a safe haven currency.
He says despite the escalation of attacks between Israel and Iran prompting investors to rush to safe havens such as the US dollar, the inflows are not as great as what would normally be expected. But Mr Gor says US President Donald Trump is keen to see the US dollar weaken because of his "fixation around trade deficits. If the dollar is weak, the US will export more and that will make the trade defecit numbers better."
Mr Gor also says Donald Trump wants less foreign investment in the US, and his proposed ‘Big Beautiful Bill’s’ Section 899 would go some of the way to make that happen, but the concern is "that’s a big problem because foreign investors own roughly $30 trillion dollars of US listed assets and another $30 trillion of unlisted assets." He says investors may start to look toward the Euro or Japanese Yen.
When asked if there could be a time when the US dollar is no longer the world’s reserve currency, Mr Gor says he thinks that time will definitely come, but the question is what will overtake it.
He says there’s an argument for hard assets such gold, as well as digital currencies such as crypto to take an increasing share of the safe haven asset allocations.
Meanwhile, Commonwealth Bank is forecasting the Australian dollar is set to weaken against all major currencies, and is headed as low as 63 US cents.
It is an abrupt turnaround in what this year has largely been viewed as a story about the US dollar’s demise.
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