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We can predict currencies' money flows using ETFs
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Loading...Strategists at Deutsche Bank AG have found that a one standard-deviation shock to ETF inflows -- passive money moving into stocks at an above-average rate -- is associated with a five basis point appreciation for riskier currencies over the following day; a two basis point appreciation for the euro; and a three basis point depreciation for the yen, all versus the dollar.
In other words, purchases of equities using passive instruments can contain highly useful information about appetite for currency risk, as reflected in notable exchange-rate moves the following day -- over and beyond the usual correlation observed between capital flows and currency gains when markets move in lockstep, according to Deutsche Bank.
ETF flow data are typically available on a daily basis, and their high level of institutional ownership provides clues as to the sentiment of smart-money investors, in contrast to mutual funds, which are typically more skewed toward a retail demographic.
Source: Bloomberg Pro Терминал
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