Foreign buyers: Holding up a house of cards?

For now, large monthly foreign capital inflows, primarily into the U.S. Treasury market, have been cushioning a potential blow.

“[Foreign purchases of U.S. assets] largely come from intervening central banks in Asia who buy dollars to hold down the value of their currencies,” Powell says.

Powell also points to oil-producing countries that reinvest “petro-dollars” into the U.S. as another large buyer of U.S. assets, helping to offset the trade gap.

One way to monitor those inflows is to watch the monthly Treasury International Capital (TIC) report. In March, TIC data, which measures foreign net inflows, totaled $69.8 billion, just covering the trade gap of $62 billion for that month.

“The biggest worry is that a depreciating dollar would mean losses on these investments, which would just create a downward spiral,” Powell says.

FX traders will want to monitor the monthly TIC report to make sure portfolio flows continue to cover the monthly trade gap. “If it doesn’t cover [the gap], that would be the catalyst for a major dollar sell off,” Buskas predicts.

For another perspective on U.S. and foreign investment, see “Playing with fire.”