Dollar Rally Fails to Entice $1 Trillion Manager Wary of China

  • Greenback faces headwinds from commodity prices, yuan: Amundi
  • Gains likely to be more selective from here, AMP’s Naeimi says

What's the Biggest Risk to Dollar Dominance?

Beware the rally in the dollar.

Amundi SA, which oversees about $1.2 trillion, said the U.S. currency is unlikely to sustain its advance the way it did from 2013 to 2015 as it faces headwinds from higher commodity prices and instability in the Chinese yuan. AMP Capital Investors Ltd., a Sydney-based $119 billion asset manager, said the greenback’s gains versus emerging-market currencies have been excessive.

“I don’t think the broad-based nature of the dollar rally is sustainable,” said Nader Naeimi, who heads a dynamic investment fund for asset manager AMP Capital. “From here the dollar rally is likely to become more selective.”

The dollar’s gains have provided a good opportunity to buy emerging-market currencies, which will benefit from global growth and stronger commodity prices, he said. At the same time, he is holding on to his bullish bets on the U.S. currency versus the yen as the Bank of Japan controls the nation’s yield curve.

A gauge of the greenback has surged almost 5 percent since the Nov. 8 U.S. election to the highest in data compiled by Bloomberg starting in 2004. Speculation that President-elect Donald Trump’s promise of fiscal stimulus will fuel inflation drove up global bond yields and added to the case for the Federal Reserve to raise interest rates. 

Awaiting Trump

As investors await details of Trump’s policy mix, a protectionist stance as touted on his campaign trail is set to hurt the dollar against the yen, euro and Swiss franc, said James Kwok, the London-based head of currency management at Amundi.

France’s largest asset manager is keeping risk in its foreign-exchange strategy low ahead of the year-end, with the market still confused by “unexpected news and price action,” Kwok said. He is bearish on the yuan as it remains overvalued against the dollar, euro and yen and is vulnerable to further fund outflows.

“A lot of investors have wrongly positioned for lower bond yields, stronger emerging market performance and therefore their capacity to take more risks or keep positions in the face of averse price actions is lower for the rest of the year,” he said.

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