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Is Now The Time To Profit on USD Strength?

Many investors in the market place lately have been taking advantage of US Dollar strength and buying it in vast quantities, in some cases- by the bucket load and particularly v's commodity currencies like AUD and NZD.

However, is the positive USD movement about to fade, or is there still a pot of gold on the other side of the rainbow?

Looking at it logically, you have the Federal Reserve in America embarking on a tightening Monetary Policy, whilst at the same time and on the other hand you have central banks like the ECB, The BOE and the Bank of Japan if we are to be very candid- doing very little at all.

Therefore, it does seem like the prudent fundamental move is to continue to LONG the dollar.

Focusing particularly on the AUD v’s the Dollar- things potentially look worse (or better if you’re a USD fanatic).

With growth in China dramatically slowing down (Australia’s largest trading partner), and a policy divergence ‘down under’ v’s the US- there is no wonder the AUD continues to depreciate v’s the USD currently.

As of right now- it isn’t plummeting like a stone falling from the top of a 118 storey high rise sky scraper but according to some analysts- it might do in the near future.

On Tuesday it went below 74 cents against the dollar and some are projecting that with the continued Trade War debacle, the slow growth in China, and the Policy divergence in place with the US, then further falls are possible.

In fact- BlackRock are projecting an AUD of 70 cents by the year end and the investment market in general has moved from a net long to a net sell Bias, with some projecting 60 cents being a possible valuation in the not too distant future.

Sam Gurung at the “Multi Strategy Investment” at Cadogan Asset Management had the following comment-

As the FX market is the worlds most traded market, with volume exceeding 7 trillion USD on a daily basis, it is most certainly an Asset Class our Trading Team converse about on a regular basis.

It is also a market, that we believe it is imperative that you have some form of exposure in your investment portfolio, whoever you are.

The classic example in my humble opinion was in 2008 when many investors were “sitting on their hands” during the credit crunch. However, whilst the funds were residing in the clients bank account rather than being worked in the market- the GBP was losing massive value via the JPY and the USD. The GBP depreciated 42 percent v’s the JPY that year, so whilst clients perceived their portfolio to be “safe”, even by adopting some exposure towards the JPY they wouldn’t have witnessed a dwindling net worth whilst they slept.

Our team will be the first to sing the merits of some exposure to the FX arena. It’s something I personally have always advocated.

In regards to the USD and the AUD we’re actually slightly contrarian currently in regards to our synopsis on this pair.

We believe most commodity based currencies like the AUD, CAD and NZD will appreciate in value at the same time as the USD depreciates in the near future.

Our team trade technically and because of this methodology we believe fundamental news/data is very quickly factored into the market.

Therefore if Tom, Dick and Harry are all reading about the Federal Reserve policy and the slowdown of Chinese growth then the chances are- the valuation of these fundamentals are already reflected in the markets.

We’re of the belief that this may be the classic “buy the rumour and sell the fact” trade.

Ladies/Gents- we can’t offer guarantees- but I can reside here right now and project that we believe bucking the trend, and adopting the contrarian approach may be a wise move as 2018 evolves.

I guess time will inform us of the answers, but we are confident with our projections.

For further information on “The Multi Strategy Investment” at Cadogan Asset Management or market commentary- please contact Sam on