This time around, the USÂ dollar is not the currency of choice in a global scare.
What awaits us further along the road? The team at Credit Agricole weighs in:
Here is their view, courtesy of eFXnews:
In an eerie repeat of the 2013 taper tantrum, the latest risk selloff is mutating into a USD selloff.
The USD losses against G10 majors in August 2013 were driven by the Fed’s growing nervousness about the markets. It ultimately led to the delay of taper beyond September and triggered a broad USD selloff. Similarly, the driver of the latest USD underperformance is the anticipated delay of Fed lift-off.
There is one important difference, however. The taper tantrum was Fed-induced while the latest bout of risk aversion is fuelled by concerns about China (the weak Caixin PMI overnight likely added to the fears).The USD-weakness thus seems to be more of a collateral damage.
This also highlights that the main reason for the latest USD weakness is positioning unwind(which is also keeping EUR and JPY very supported), rather than a fundamental change in investors’ view on the Fed.
Indeed, we think that the Fed should still hike rates this year and that it will respond to any unexpected developments by flattening its glide path rather than delaying lift-off. In that we assume that the domestic-demand driven US economy should remain sufficiently insulated from the China impact on global growth and inflation.
It follows that the USD bulls should return to buy on dips before long. That said, some cautiousness should be warranted in the very near term.
For lots more FX trades from major banks, sign up to eFXplus
By signing up to eFXplus via the link above, you are directly supporting Forex Crunch.
