The firm notes that, in the FX market, “risk-on” has manifested as a renewed general weakness in the dollar and strong performance in high beta commodity currencies. “Indeed, the cumulative actions of policymakers around the world are playing a pivotal role in stabilizing growth expectations and supporting asset prices,” says Quentin Tully, research analyst at BCA.
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“There is no evidence that the authorities are about to reverse course. If anything, even more stimulus will be forthcoming.” In light of the reflationary policies and the bottoming in several of BCA’s global leading economic indicators, the firm’s foreign exchange strategy service advocates a pro-cyclical currency stance as investors will be pushed out on the risk spectrum and away from the perceived safety of the zero-yielding dollar.
“Moreover, technical indicators – speculative positions, sentiment and momentum – suggest that the dollar’s decline will continue still,” says Tully.
“The bulk of our short US dollar trades are against a variety of growth sensitive currencies: AUD, CAD, SEK, NOK, KRW.”
BCA Research will provide regular currency analysis exclusively to Euromoney FXNews.