Currencies

Overnight, the RBA cut the cash target rate for the first time since 2022, marking the beginning of the policy easing cycle in Australia. However, the RBA will proceed cautiously with further rate cuts, given a tight labor market and still elevated services inflation. This will keep Australian government bond yields elevated versus global yields, benefitting the Australian dollar.

In lieu of all the geopolitical and economic news in media, this report looks at where next the dollar is likely to trend in the next one-to-three months. Our view is down, though on a cyclical horizon (six-to-twelve months), we would not be short the dollar, for now. 

Europe is about to become President Trump’s next target. The good news: a US/EU trade war will be short as common ground to achieve a deal exists. The bad news: European assets remain at the mercy of heightened uncertainty. How should investors position themselves in this tricky context?

Argentina is entering a regime shift from the traditional short boom-bust cycles of the past 50 years. Profound structural reforms will result in a productivity boom, leading to a more durable economic expansion while keeping with the disinflation trend. Authorities will likely lift capital and currency controls in the second quarter of this year. All in all, odds are that Argentinian assets have entered a multi-year bull market.

Markets and forecasters anticipate a “Golden Age” for Trump’s America, with US growth expectations soaring while the rest of the world lags. However, this extreme optimism means that there is a lot of room for disappointment. Cooling income growth, weak housing and less deficit spending than expected will result in US growth underperforming expectations. Maintain a modest underweight to equities and modest overweight to fixed income. US markets have become more expensive relative to the rest of the world even as quality differentials have stabilized. Prepare to downgrade US equities to underweight and to upgrade Euro Area and China to overweight. We will wait to pull the trigger until we have more clarity on trade policy and when the dollar's momentum turns negative.