Through all the static of the global economy, one constant has held true for the past decade: the has been a counter-cyclical safe haven. It weakens when the business cycle improves, and rises when higher-yielding assets fall (and vice versa.)
The dollar has soared in the new era of good feelings, following strong and data that have economists believing the recovery could be for real this time. The greenback's strength is likely to continue, meaning it could trade like a growth currency for some time. The shift has implications for currencies, oil, and even equities.
That development would mark a sea change — even in a market as dizzying as foreign exchange, where political events, central bank decisions and plain vanilla tactical investments can affect prices in a millisecond.
David Woo, head of global rates and currencies research at Bank of America Merrill Lynch, has an interesting theory as to why this is the case, and it has to do with the booming U.S. energy market.
Woo argues the dollar's longstanding pattern of weakening on good news and strengthening on bad is breaking down, largely because of growing U.S. energy development.
"The move towards energy independence reduces the U.S. current account deficit while extending [its] growth advantage over Europe and Japan," he says, calculating that the shift could boost U.S. GDP output relative to Europe by 1.5 percentage points.
Producing more domestic energy "will likely also help break the vicious circle between the dollar and oil prices that has been a major source of volatility for the U.S. economy."
China's explosive economic growth in recent years has been a big reason for the dollar's trading patterns in recent years, Woo says.
The U.S. has benefited little from China's growth, since American exports to China are relatively small. At the same time, however, U.S. energy demands are enormous relative to China's. That has left the world's largest economy — and its currency — at the mercy of swings in global energy demand.
"The rapid growth of Chinese demand for energy over recent years has represented a bigger negative terms of trade shock to the US than to other countries," Woo added. "It is not a coincidence, in our view, that as Chinese oil consumption rose, the dollar fell steadily."
Now, with U.S. energy consumption lower and production on the rise, the situation is reversing itself.
(Read more: CNBC: OPEC Sees 2013 World Oil Demand Downside Risk)
"The full potential of the US energy independence story," Woo says, "is a game changer for the US in the global competitiveness landscape, especially against China and Europe." And this time around, he says, the good news should benefit the greenback.
Other factors may be supporting the dollar's newfound strength, mainly having to do with overseas investors sinking money into U.S. markets. Jens Nordvig, global head of FX strategy at Nomura Securities, has also noticed that the dollar is trading differently, and he thinks part of the reason is foreign inflows.
"Foreign inflows into U.S. risk assets, especially equities, are picking up (driven by flows from Europe in particular)," he wrote in a note to clients.
Nordvig estimates that net cross-border equity inflows will total between $100 billion and $150 billion this year, after having been close to zero for the past several years.
"From a shorter-term perspective, we worry that the U.S. data picture will see a hiccup in Q2, posing a challenge to dollar gains," he says. "But from a longer-term perspective, we think the flow story is improving meaningfully, which should support the dollar over time."
Citigroup has also noticed the shift in the dollar's trading patterns. "U.S. macro policies are working and generating robust U.S. asset markets compared to other countries (setting long-term sustainability aside) -- we are not seeing the normal risk-on flow out of dollar assets," Citi's strategists wrote in a note to clients.
For currency investors, the implications are significant - but not simple.
Bank of America's Woo says the dollar has moved so far since the beginning of the year that he sees little additional upside in buying the dollar against the Canadian dollar, a trade he recommended at the beginning of 2013. He said the and the pound have also "already had quite a correction. Short positioning in them also seems crowded."
Still, Woo does likes the dollar against the euro, and estimates that the single currency could fall to 1.2500 by the end of the year.
"U.S. energy independence has altered fundamentally the valuation calculations for this important cross," he says. "Going forward, it will be the euro zone rather than the U.S. that will have to bear the brunt of the cost of the growing Chinese and Indian consumers and their appetite for energy."
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