When a nation runs a current account or trade deficit, the laws of economics dictate the value of that nation’s currency should depreciate proportionately to make its products and assets relatively cheaper for foreigners to buy. However, as the US twin deficits have exploded over the past few years, the USD has remained stable or appreciated against all major currencies. The explanation seems to be that foreigners are still more than willing to invest in the US and buy US securities, indirectly bridging the gap between domestic savings and investment that form a current account deficit. In October, foreigners purchased a record $106.8 Billion in US securities, which include stocks, bonds, and treasuries. The lesson for currency traders is simple: until foreigners tire of US assets, don’t expect the USD to depreciate.

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