Currency valuation methodologies
Valuation is a key pillar of active currency management, despite the long time horizon required.
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Currency
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Improved cyclical outlook pushes USDCAD towards fair value
The Canadian dollar has appreciated substantially this year and we believe it is now approaching fair value versus the US dollar. While our longer-term models remain overweight, we have begun scaling back exposure.
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To hedge or not to hedge, that is the question
The decision whether to hedge currency exposure is dependent on three main variables: the investor’s risk appetite; the portfolio composition; and the economic environment. For investors, as with any investment decision, it is important that they understand their ability and their willingness to take risk.
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Disentangling the dollar outlook from US growth
Over the past few quarters our forecast that widening trade deficits would weigh on the US dollar has broadly been correct. The prospects for trade-related flows look set to remain a challenge for the dollar. By contrast, the growth outlook for the US economy is bright.
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A brighter outlook for 2021 for EMFX
We believe the rollout of a vaccine is likely to have the greatest influence on financial markets in the first quarter of 2021. Periods of growth recovery are historically associated with a weaker US dollar, particularly vs. cyclical and emerging market currencies (EMFX). With favourable valuations, flows into EMFX could be significant.
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A case for renminbi exceptionalism
The renminbi has led the positive performance of Asian currencies against the US dollar over the past quarter amid a tenuous recovery across global emerging market currencies.
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The Canadian dollar: Well positioned to participate in future Dollar weakness
The Canadian dollar has been a laggard amongst developed market currencies this year, falling sharply against a strong dollar as the market searched for safe assets at the peak of the COVID crisis.
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Is hedging leading to an alpha opportunity for the yen?
The Japanese yen has been a popular currency to own during over the past few months by virtue of its negative correlation with equities.
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Finding value in passive hedging
The increased level of interest rate volatility in the currency swap market has received considerable attention from market participants.
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Outlook for the Pound as the Brexit Deadline Approaches
Our long standing view on the pound has been that it is not as cheap as widely perceived despite the fall related to Brexit.
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The euro as a funding currency
A couple of key trends in capital flows suggest the role of euro funding is growing, and we outline the near-term implications for currency markets.
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Market misconceptions on Scandinavian currencies
Since the start of 2013, consensus forecasts for the Swedish krona and Norwegian krone have been persistently bullish and persistently wrong.
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What would a Conservative government mean for sterling?
With current general election polling consistent with a victory for the Conservative Party, the pound has outperformed over the last few months.
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Why the US dollar may not be as overvalued as you think
We believe the US dollar is currently experiencing a rare structural change in valuation level that means it may be far less overvalued than is widely believed.
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Currencies through an ESG lens
We believe a well-designed, tailored approach to using ESG factors for active currency management can be a source of added value for clients over the long term.
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Why is the potential for US currency intervention a topic of interest?
The probability of US unilateral intervention has risen from a tail scenario to one of low-to-moderate probability.
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Will the dollar continue to underperform?
How the dollar trades following the cut in rates, depends to a large extent on whether the rate cuts are mid cycle or recessionary.
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