Apollo Chief Economist: If AI trading collapses, the dollar will be at risk.

```

Behind the recent rise of the US dollar lies a little-known vulnerability—an implicit dependence on AI trading.

Torsten Slok, Chief Economist at Apollo Global Management, warned in a research report on Monday that the international pursuit of AI themes has propelled foreign capital inflows into the US stock market to a 12-month rolling historical high, but most of these investors have not hedged their currency risk. This means that if the AI narrative fails and foreign inflows reverse, the dollar will face significant downward pressure. "The dollar has an implicit dependence on AI trading," Slok wrote.

This warning comes as US stocks, after reaching record highs in early June, have entered sideways volatility, and doubts are rising about whether the massive investment in AI infrastructure can be converted into profits as expected. The Bloomberg Dollar Spot Index has risen 1.4% so far this year, with the yen and Canadian dollar among the worst-performing G10 currencies.

The AI frenzy drives record inflows into US stocks

Slok pointed out that the AI investment boom and the repeated new highs in US stocks are core drivers attracting large-scale overseas capital inflows. Overseas investors must convert their own currencies into dollars before buying US stocks, a process that provides continuous demand support for the dollar and has become one of the main sources of its recent strength.

According to data from the US Treasury, net foreign capital inflows into the US stock market over the past 12 months have reached a historical peak, confirming the strong appeal of the AI theme for global capital.

Unhedged currency exposure amplifies dollar risk

However, this capital flow pattern has also planted hidden dangers. Slok emphasized that most foreign equity investors have not hedged their currency risk, making the dollar's trend highly tied to US stock performance.

The background to this phenomenon is: US interest rates remain higher than those of major economies, making the cost of purchasing dollar currency protection prohibitively expensive and deterring investors. This in turn increases the dollar's exposure to stock price volatility—if AI trades face selling pressure and foreign capital exits, it will directly translate into selling pressure on the dollar.

Fed rate hike expectations provide temporary support

Despite the above risks, the dollar is not without support. Currently, the market expects the Fed to start raising interest rates as early as September, which provides a positive boost for the dollar. By contrast, other major economies are seen as less resilient, and their central banks are less inclined to tighten monetary policy; this rate differential remains favorable for the dollar in the short term.

However, Slok's core reasoning is that if AI investor confidence wavers and they start reducing their holdings of US stocks, the dollar's interest rate support may not fully offset the shock caused by capital outflows. The fortunes of AI trading are becoming an unignorable variable in forecasting the dollar's trend.

Risk warning and disclaimerThe market carries risk; investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situations, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are appropriate for their particular circumstances. Invest accordingly, and assume responsibility for the outcomes. ```