Ken_Tryon No that's correct - except that it didn't work right away because my external disk had the "Ignore ownership" flag turned on. As a result, all I could see in my OneDrive cache was the directory structure, but no files at all. That led me to believe that there was no solution, until quite by accident I decided to try again with ownership enabled.
It does sound strange that only some files are stored locally when the designated cache is on an external volume. I did not experiment with it in any depth, so that might have been the case for me as well. All I can report is that disk usage on my local disk increased significantly, and by the amount expected if all the downloaded files were being stored locally instead of on the external drive. So far (and I should say that I'm only starting to use OneDrive again as the semester is just getting under way) it seems that with my home directory on the external disk, nothing is being stored locally - it's all on the external disk, apparently in ~/Library/CloudStorage.