UBS - "The risk of the Fed raising its bond purchases further towards year end remains a threat to the dollar. But given other central banks are easing policy or likely to do so in Q4'12, we don't want to chase the greenback lower from current levels. Instead we prefer the yen as a funding currency amongst the majors and the Swiss franc as a funding currency in Europe. Moreover, we think the Australian dollar amongst commodity currencies remains at risk from renewed easing by the RBA and further disappointment in China.
This week's key points are
- dollar already discounting current Fed easing
- focus on next ECB meeting, beware euro rallies
- more BoJ easing likely after this week's move
- more BoE easing also likely given latest MPC minutes
- prefer Norway's currency despite Riksbank minutes
- RBA minutes should embolden Australian dollar shorts
- new RBNZ policy agreement supports NZ dollar"
Mansoor Mohi-uddin, Managing Director & Head, Foreign Exchange Strategy at UBS Macro Research