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After an epic decline in 2020-2021 due to the coronavirus shock and the subsequent explosion in the Federal Reserve’s balance sheet to the current $8.2 trillion, the US dollar has made a counter-cyclical move to 93 on its trade-weighted index (DXY). . The catalyst for this move are massive Japanese purchases of long-term US Treasuries, intervention by the Chinese central bank to halt the renminbi gains, a decline in global metal and oil prices and a perceived aggressive tendency in FOMC smoke signals on monetary policy. policy.
Still, I don’t believe the US dollar is on the cusp of an imminent bull market. On the contrary, I believe that the dollar is 3 to 5% overvalued and thus Planet Forex offers compelling strategic money making opportunities for nimble currency leprechauns.
I believe risk-sensitive commodity currencies have been unfairly criticized for fears that the delta variant will hit global economic growth, even as their domestic central banks have signaled a move away from extreme monetary accommodation and inflation easing. This leads me inexorably to the Norwegian Krone and Canadian Dollar, which meet the above criteria.
It is true that the prospect of a Fed winding down rules out a buckaroo collapse, but there is still money to be made in the carry trade with the petrocurrencies.
My macro views on US Treasury/Canadian Treasury spreads and the outlook for West Texas Intermediate crude lead me to believe the madman is a buy at 1.26 before a retest of its May high at 1.2320. I prefer to trade Norwegian kroner against its classic low-yield nemesis (the yen, Swissie, euro), but I’m also tempted to buy the Nokki because it flirts at 8.90.
Matein Khalid is Chief Investment Officer at Asas Capital
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