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A deficit (or deterioration) in the capital account means resident capital is flowing out of the country, in the pursuit of ownership of foreign assets. These statements are simplification of relatively intricate balance sheet operations, but they describe the flows well. From Capital Account to GDP, and it is not a wide leap from GDP to the domestic currency thereafter (see chart below).We therefore believe that the US Dollar would be significantly stronger later in the year due to the influx of domestic and foreign capital which has already been going on for several quarters.

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