ANZ is out with their monthly forex outlook; their strategy overview is not to sell the US dollar right now
OVERVIEW AND STRATEGY:
- Liquidity is ample, volatility is low and global growth momentum is improving.
- Together these make for a strong appetite for risk.
- However, sentiment against the USD looks too bearish to us.
- The monetary policy outlook is a key driving force for currency markets. But market participants appear over-eager in chasing the next developed market central bank that could start to tighten.
- As we noted last month, the liquidity steam-roller is coming; and, while the carry trade is still in vogue, it is worth remembering that the exit door is very narrow when positioning is one-sided.
- Risk reward does not favour selling the dollar at these levels.
THEMES:
- We remain of the view that a rebound in the USD will come once the liquidity tap starts to turn off or in the event of a rise in risk aversion.
- This will see AUD, NZD, and Asian currencies impacted more.
- For now, we are focusing on relative value trades rather than looking for outright long USD plays.
