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Luc de la Durantaye, chief investment officer, multi-asset and currency management for CIBC Asset Management.
We still hold on the U.S. dollar a mid to long term sort of negative bias to the dollar. It’s still amongst the more overvalued currencies. The U.S. economy continues to have a large current account deficit. Those are fundamentally negative, downward pressure on the dollar.
But on a cyclical basis, we can see that the U.S. economy might be the one ahead of other major economies — like the European economy, the Japanese economy and even the Chinese economy — to sort of start removing the stimulus, so tightening a little bit the monetary environment.
So, we could see a U.S. dollar that is going to be more range trading relative to some of these economies — the euro, yen, even the Chinese Renminbi. We would see the dollar flat to up because of that cyclical support, the U.S. being ahead of these economies at removing that monetary policy.
But, given that the context that we see is a continued economic expansion, we would see the U.S. dollar decline versus certain cyclical currencies like the Canadian dollar. So, in this context, reverting to the Canadian dollar outlook is we still have a global economy that continues to reopen and expand. That’s supportive for also trade and supportive for commodity prices and oil. So, that is, on net, a relative positive for the Canadian dollar. And it remains undervalued versus the U.S. So, we would see the Canadian dollar stabilizing here and regaining the recent losses that it had, and then reach out maybe an 82–83 cents Canadian dollar.
The other interesting one is the euro, which we think might weaken a little bit. The ECB has just reviewed its inflation target and seemed to be adopting a bit more dovish sort of policy in order to achieve its inflation target that they have missed for over 10 years. And so, that would put a little bit of downward pressure on the euro, so we would see the euro being one of the currencies that could be weak over at least the next six to 12 months.
In other parts of the world, we see some attractive currencies. In the EM world, a number of economies like Russia and Mexico have already started to raise interest rates. Or India and Indonesia are likely at least staying put or raising rates over the next 12 months.
They also provide much better interest rates, a much better carry, than for example, the Euro.
And so, we would be favourable and continue to hold positions in some of these currencies, like the Russian ruble, which is also supported by stronger oil prices; the Mexican peso, which offers attractive rates and attractive real rates; and Indonesia to a certain degree and India. So, there are opportunities outside the developed world that are interesting.