The Unpredictable Destiny of the Mighty Dollar
The Perspective of Hedge Funds on the Future of the US Dollar
Hedge funds’ take on the future of the mighty dollar
London/New York, Nov 30 (ANBLE) – After making hay when a summer bond rout propelled the U.S. dollar to 10-month highs, hedge funds are now pondering what lies ahead for the greenback.
The dollar, down 3.5% in November against a basket of other major currencies, is set for its worst monthly performance in a year as expectations of interest-rate cuts next year grow, toppling Treasury yields from multi-year highs.
Five funds shared their views on the fate of the dollar. This does not represent recommendations or trading positions, which some hedge funds cannot reveal for regulatory reasons.
1/ AQR CAPITAL MANAGEMENT: Riding on a Dollar Stampede
– Systematic asset manager
– Size: $95 billion assets under management (AUM)
– Founded in 1998
Managing director Jonathan Fader believes that an end to U.S. rate hikes does not necessarily imply dollar weakness.
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“In particular, growth trends in the U.S. look notably stronger than in most other major economies around the world,” he said.
Fader sees the dollar as a powerful stallion stampeding through the markets. He believes the best way to harness this unstoppable force is to buy the greenback against currencies exposed to negative price trends, weaker economic fundamentals, and dovish monetary policy, such as the Swiss franc. In fact, the Swiss franc is up around 5% against the dollar so far this year. Talk about being bucked off!
2/ FLORIN COURT CAPITAL: The Geopolitical Tug-of-War
– Diversified systematic asset manager
– Size: $1.8 billion AUM
– Founded in 2016
Doug Greenig, Florin Court’s chief investment and executive officer, has a different take on the fate of the dollar. He believes that as geopolitical tensions disperse power to different parts of the world, the dollar will slowly decline, like a deflating balloon losing air.
“The year-on-year reduction in the U.S. broad money supply is huge. It’s even bigger when you factor in the inflation-adjusted money supply,” said Greenig, explaining the dwindling vitality of the dollar. He likened this to the punch draining out of a bowl at a party, leaving partygoers feeling deflated.
Greenig also pointed out that emerging market countries such as Brazil, Colombia, Hungary, and Poland raised rates earlier and more aggressively than advanced economies. This, combined with attractive bond yields, offers enticing opportunities to investors willing to venture off the beaten path.
3/ NWI MANAGEMENT LP: A Delicate Dance with China
– Global macro hedge fund
– Size: $2.2 billion AUM
– Founded in 1999
NWI takes a cautious approach to the dollar, anticipating its twists and turns like an expert ballroom dancer. Tara Hariharan, managing director of global macro research, said the hedge fund structures its currency bets to limit the effect of the dollar’s swings.
One of the dances they’re engaged in is with China. Hariharan predicts the yuan’s seasonally supported rise until late January, buoyed by Chinese New Year-related demand. However, after the celebrations, the yuan may stumble and lose its footing as capital outflows rise, multinationals repatriate their earnings, and the Chinese economy further slows down. NWI also suspects that China may force a weakening of the yuan to enhance its export competitiveness. Talk about some fancy footwork!
4/ GARDE ASSET: Betting on the Mexican Peso
– Brazilian hedge fund, with a global macro strategy
– Size: $300 million AUM
– Founded in 2013
Garde CEO Carlos Calabresi is placing his bets on Mexico’s currency, the Mexican peso. He takes advantage of the peso’s historic high interest rates of 11.25%, which have been in place since March, and its admirable balance of payments. Calabresi believes that the peso will benefit from the phenomenon called “nearshoring,” as manufacturing capacity is moved closer to the U.S. market from other regions like Asia.
“These trends are likely to lead to a strengthening of the Mexican peso,” Calabresi confidently stated. And indeed, the peso has surged roughly 13% against the dollar this year. It seems like the peso has taken a swing at the dollar and landed a solid punch!
5/ CIBC ASSET MANAGEMENT: Brazil’s Currency Delight
– Canadian asset manager, with an active currency strategy
– Size: $145 billion AUM
– Founded more than 50 years ago
Michael Sager, head of multi-asset and currency management at CIBC Asset Management, is setting his sights on the Brazilian real. With a double-digit benchmark interest rate of 12.25%, which attracts foreign capital, and controlled inflation around 5%, Sager sees the Brazilian real basking in the limelight.
“If you put all of those pieces together, to us this is what a strong fundamental country and currency should look like,” Sager confidently declared. The Brazilian real has been putting on quite a show, up roughly 8% against the dollar this year. It seems like the Brazilian real is taking center stage!
And there you have it, folks! A glimpse into the complex and ever-changing world of hedge funds and their thoughts on the mighty dollar. Who knows where the greenback’s fortunes will lead? Will it gallop ahead like a wild stallion or stumble and fall like a deflated balloon? Only time will tell. In the meantime, let’s sit back and enjoy the show!
What are your thoughts on the future of the dollar? Do you agree with these hedge funds’ perspectives, or do you have your own speculations? Share your opinions below and let’s have a lively discussion!
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