USD Weakness: New Facts, New Views

10:18 PM

USD weakness was previously a part of my thesis, however, this has changed and now I believe the opposite will happen.

A pro-America election campaign brought about a rhetoric that the US will intentionally devalue the USD in order to achieve better trade terms.

However, now that changed since Donald Trump has been unable to push through even the travel ban, it is hard to believe the president will be able to push through his campaign promises. Until he proves that he is able to bring people onboard, I am going to take the view that USD will strengthen according to traditional Economics when interest rates rise.

Having said that, which currency pair looks the best to reflect this? AUD, EUR, CHF?

After my recent run-in with the Swissie, the CHF looks pretty compelling. It seems to be perfectly correlated to the USdollar index. However, volatility is lower and spreads remain high.

AUD is a currency pair close to my heart, having studied in the great nation during my undergrad. Lowering interest rates may always be on the books for the AAA economy who has not done so well with falling commodity prices. With a shift towards a service oriented economy, much needs to be done and I expect stimulus for the economy.

EUR - is a red flag for me, I will stay away from it due to the upcoming elections and what I suspect is the beginning of the end of the Eurozone.

GBP - now that elections are coming up and Theresa May's intentions are very clear. My original thesis was for a stronger GBP and this was based off a "soft-Brexit"  and Theresa May's intentions do seem towards this. But it is simply too optimistic.

I think the remaining members of the EU will have to punish Britain before other members contemplate leaving. Thus favorable FTAs, in my opinion, is unlikely.

JPY - this currency is volatile, very volatile. And while it was my favorite currency previously due to its low spreads. It no longer has the same appeal to me due to what I believe is the fair value of the currency.

Given the above, I will likely only approach the JPY(with caution), CHF and AUD.

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