Choosing the correct foreign-exchange strategy has become even more important in a world of unprecedented central-bank monetary stimulus and currencies linked to historically low interest rates. Investors were recalculating their approaches on Aug. 26 after Federal Reserve Chair Janet Yellen’s Jackson Hole, Wyoming speech boosted the likelihood for higher U.S. rates while monetary policy makers in Europe and Asia add stimulus.
"Central-bank policy is always going to be the number-one driver of our strategy," said James Ong, an Atlanta-based senior macro strategist at Invesco, which manages $812 billion. "The ability to acknowledge the valuation and policy dynamics in Japan was the number-one thing that helped us. Diversifying some of our trades away from being dollar trades also helped as well."
While emerging-market-based carry trades stumbled this month, the Deutsche Bank measure, which focuses on more widely traded G-10 currencies, has returned 5.8 percent this year, a stark reversal from last year’s 7.7 percent decline.
Global investors have piled into the Australian and New Zealand dollars, lured by yields that even near record lows still pay a premium over bonds from Japan, Europe and the U.S. Their rallies, a boon for carry-trade investors, fly in the face of Antipodean central bankers who continue to cut rates in an effort to boost inflation.
"Aussie and Kiwi have been moving, despite central banks saying more cuts may be in the pipeline," said Ugo Lancioni, a money manager in London at Neuberger Berman Group LLC. The firm has about $246 billion in assets under management. “Capital appreciation has allowed the strategy to perform well."
The valuation strategy is up 5.1 percent in 2016, on pace for its fourth-straight year of gains, according to Deutsche Bank data. The yen, more than 14 percent undervalued versus the Organisation for Economic Cooperation and Development’s purchasing-power-parity exchange rate to start the year, has surged 18 percent in 2016, defying forecasts for weakness even amid renewed monetary stimulus by the Bank of Japan.
For the complete article please visit
Bloomberg
ABOUT
Dynamic Wealth Research was founded on the principle the world is changing at an ever-increasing pace. The greatest profit opportunities an investor will ever find are from massive, sweeping changes. Dynamic Wealth Research analyzes and closely follows these changes, keeps its readers on the leading edge of them, and shows you how to be best positioned these anxious, interesting, and ultimately profitable times.
