Some investors are zeroing in on the battered currencies of commodity-producing countries to take advantage of more potential weakness in the dollar, which has recently wobbled on signs the Federal Reserve will soon end its rate-hiking cycle
U.S. Dollar banknotes are seen in this illustration picture taken June 14, 2022. REUTERS/Florence Lo/Illustration
Some investors believe there's an opportunity to buy on the cheap. Adding to the allure are expectations that the Fed's rate increases - which helped lift the dollar to a two-decade high last year - are reaching a conclusion. The U.S. central bank is expected to announce a 25-basis-point rate increase at the conclusion of its monetary policy meeting on Wednesday, but investors believe the chances for more tightening beyond that are slim.While some commodity currencies have enjoyed strong runs against the dollar this year, many bullish investors are looking for winners among the laggards.
A Deutsche Bank analysis of currency valuations based on factors including terms of trade and gross domestic product shows the Norwegian currency undervalued against the U.S. dollar by more than 30%, while the Australian dollar is about 20% from fair value. "Most are screaming over-valuation for the U.S. dollar," said Bipan Rai, North America head of FX strategy at CIBC, who believes the dollar is overvalued against currencies including the Japanese yen, euro and British pound.
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