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Dollar strong but weak thereafter

Major currencies will remain range-bound with no sign of changing soon. This summer we have seen the full market volatility as we wait for Fed lift-off which is also contrary to the movement is expected.

We continue to believe that the path of least resistance is truly the strength of the dollar against the preference of the euro and the yen, from which “sell the fact” the falling dollar could boost the euro between 1.15 and 1.20 early next year, after this falls between 1.0 and 1.05 in the upcoming months.

Commodity currencies will suffer because of the prospect tight global liquidity, derived from the higher US rates, leading down prices of commodities. In addition to this, the clear intention of many politicians to trace the fall of their currencies in terms of trading and defeat in local currencies like the Australian dollar and New Zealand dollar.

We have seen a large increase in international loans in euros in recent quarters; this means that many lenders may be changing dollar loans to euros loans. This gives us hope that the period post Fed-hike it’s better for emerging currency market than the pre-hike period.

Sterling is the best coin that has the opportunity to hold the dollar, given the prospect of base rates hike. Thursday marks a change in the release of the minutes from the Bank of England and the inflation report. These two major releases will be announced at the same time as the rate decision, giving the financial markets an information overload. It is assumed that this is in order to improve transparency.

The key is whether British rates will rise and, as we shall see in a few months after the Fed lift-off, it seems likely that the pound / dollar can stay within 1.45-1.65 for the wrath of all the foreseeable future.

The Australian dollar is not only one of the currencies related to commodities that have succumbed to the fall in prices and also our experts suggest that should also fall. In New Zealand members of RBNZ (Reserve Bank of New Zealand) have the desire that the currency should be weaker, but there is already speculation that it can recover rather quickly.Undoubtedly this is a risk, but we believe that the fundamentals of the local currencies such as the Australian and New Zealand dollar are just so great any change in central bank preferences will just get stamped upon by the bears.

Andres Salazar

asalazar@tvmarkets.com

 

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