BCA Research tells investors to dump the dollar for these currencies
By Aboki Forex —
Investors should sell the U.S. dollar against the South Korean won, Japanese yen, Taiwan dollar, Singapore dollar and euro, BCA Research has advised. The recommendation comes as American real interest rates decline and foreign portfolio inflows into U.S. assets weaken.
BCA Research said it maintains long positions in the won, yen and Taiwan dollar against the greenback. The firm also holds the Hungarian forint as a proxy for the euro.
Why these currencies?
The recommended currencies are backed by current-account surpluses, which BCA expects to provide support as international investors reduce their exposure to U.S. assets. The Chinese yuan should also appreciate against the dollar, though BCA expects authorities to limit those gains through intervention, leaving the yuan weaker against other surplus currencies.
On the other side, BCA expects the Brazilian real, Indonesian rupiah and Philippine peso to underperform, making them less attractive alternatives to the dollar.
What drives the bearish dollar view
The firm's bearish view rests partly on its expectation that U.S. "core real yields" will decline. BCA defines this measure as the inflation-protected Treasury yield after excluding the bond term premium.
Recent increases in U.S. yields have largely reflected higher fiscal and inflation-related term premiums rather than stronger growth expectations, the firm said. Rising term premiums tend to weaken the dollar, while higher core real yields are usually supportive.
Foreign purchases of U.S. equities linked to enthusiasm over artificial intelligence have helped finance America's wide current-account deficit and supported the greenback. BCA expects those inflows to slow if expensive U.S. technology shares weaken. The firm said the dollar could become more sensitive to global growth and fall alongside U.S. equities.
The euro may act more defensively as European investors reduce the amount of their current-account surplus recycled into American securities.
Positioning advice and winners
BCA also expects U.S. stocks to underperform global markets. It recommends underweighting U.S. equities, maintaining neutral exposure to emerging markets, modestly overweighting Europe and substantially overweighting Japan.
A weaker dollar should support gold and gold-mining shares, while BCA also favours non-U.S. government bonds after any near-term selloff.