Dollar Weakness Seen in Month-end Rebalancing

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February month-end flows are likely to result in a weaker Dollar, according to Crédit Agricole’s assessment of potential month-end currency market flows.

According to analysts at the European bank, the USD’s performance in February suggests moderate USD selling at month-end, particularly against CAD and AUD.

“Global equity markets were broadly firmer in February. In FX, the USD was broadly firmer on the month. Overall, the moves in equity markets, when adjusted for market capitalisation and FX performance this month, suggest month-end portfolio-rebalancing flows are likely to be moderate USD selling across the board with the strongest sell signal in the case of the USD vs CAD and AUD,” says Valentin Marinov, Head of G10 FX Strategy at Crédit Agricole CIB.

What is Month-end Rebalancing?

Crédit Agricole explains that global portfolio managers re-hedge currency exposure at month-end to maintain currency benchmarks, influenced by the change in equity performance and FX spot moves.

This rebalancing activity, typically felt near the 16:00 London fix on the last trading day of the month, generates signals for all USD/G10 currency pairs, indicating the expected direction and strength of FX month-end flows.