Below is an interview we did for our "10 Things You Need To Know Before The Opening Bell" newsletter with Sebastien Galy, a senior forex strategist at Société Générale, on some of the big stories affecting global markets.
BUSINESS INSIDER: Is there a single most important exchange rate to be watching right now in terms of gauging the prospects for the global economy?
SEBASTIEN GALY: The Australian dollar is a good proxy for the Chinese slowdown as Australia provides much of China's base metals. It rose sharply with the rapid rise of Asia since 2002, and has since 2013 come under significant pressure as it adjusts to the new normal of weaker growth in Asia.
BI: The People's Bank of China has been moving to shake investors out of carry trades designed to make money on a rising renminbi. Are there any other key markets where the fate of the carry trade should be watched closely?
SG: Concerns that the internal carry trade may come undone and fears about the future may create some demand for God, especially given geopolitical stress — both in Asia and Eurasia.
BI: The February nonfarm payrolls report revealed signs of acceleration in wage growth. Meanwhile, food prices are surging. Are markets properly priced, in your view, for rising inflation?
SG: The cyclical improvement in the U.S. matters far more than a seasonal effect on food. Tightness in the labour market will eventually start to surprise in 2015, while international competition and a stronger U.S. dollar versus emerging markets will constrain wage gains.
BI: What is the most exciting trade out there right now, in your opinion?
SG: Any way to hedge against a rapid if temporary correction in equities. Currencies as usual offer a cheap way to hedge against such a correction. This can be done with a variety of currencies, from the Japanese yen to the Australian and Canadian dollars.
BI: Which developments in global financial markets, if any, would you flag as most concerning for risk appetite?
SG: The steady deterioration of Pax Americana. As rebalancing of the global economy is happening so slowly, the pain of this adjustment is felt unevenly, and is leading to political consequences one or two years down the road.
Editor's note: This Q&A went out to subscribers of our "10 Things You Need To Know Before The Opening Bell" newsletter on Tuesday morning. Sign up below to get the newsletter and more of these interviews in your inbox each morning.