UBS suggested traders to promote any potential short-term good points within the US greenback, adopting a extra bearish stance on the foreign money for the medium time period. The agency anticipates a potential corrective rebound in September, significantly if the Federal Reserve’s hesitancy to implement fee cuts larger than 25 foundation factors aligns with the seasonal development of the US greenback outperforming throughout this month.
The present market positioning knowledge signifies that the quick cash shorts towards the greenback are predominantly within the Euro (EUR) and British Pound (GBP), with each currencies doubtlessly weak within the close to time period. Nevertheless, UBS views the GBP as a purchase on dips, citing a extra supportive home charges outlook and historic patterns of a powerful restoration in sterling from late October to early November.
In distinction, the Japanese Yen (JPY) positioning is comparatively impartial, suggesting the unwinding of short-term yen-funded carry trades. The Yen can also be gaining from the return of its inverse correlation with equities, which has elevated it to one of many high performers within the G10 currencies.
Furthermore, the Swiss Franc (CHF) has carried out nicely and, with out important intervention from the Swiss Nationwide Financial institution (SNB), is anticipated to stay supported as residual franc shorts are coated. UBS has set a goal for at 0.93.
The agency’s up to date cross-border mergers and acquisitions tracker reveals a deal steadiness that’s most detrimental for the Euro (EUR), Australian Greenback (AUD), and Swedish Krona (SEK), however constructive for the GBP and JPY. For Australia, the tracker signifies a moderation within the rising development of the International Direct Funding (FDI) steadiness, which has reached a 12-month surplus of two.1% of GDP within the second quarter, the best since pre-Covid occasions. That is supported by sturdy demand for Australian fastened earnings, which helps to offset a widening present account deficit.
UBS notes that Australian items export volumes have remained secure, suggesting that the worsening commerce steadiness is because of falling commodity export costs and rising import volumes. Nevertheless, they imagine the influence on the AUD could also be restricted because the foreign money didn’t considerably admire through the post-Covid commodity value surge, and the rise in imports could mirror sturdy home demand, which is why UBS maintains a constructive outlook on the AUD.
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