We entered 2018 without a clear view on the USD and consequently we held long exposures in Asian currencies (SGD and THB) and short exposures in the antipodeans (AUD and NZD).
In mid April, we felt that the USD was ripe for a rebound and we played a long USD exposure through a basket of currencies including: AUD, CNH, IDR, KRW, PHP and NZD. Our bullish USD view paid off with the antipodean currencies weakening and from mid-May, we observed a sharp decline in the value of the CNH. While we maintained a bearish view on IDR and PHP, we have been surprised by their resilience although we attribute strength in the former to concerted, and we believe flawed, policymaker action.
We then shifted our attention to short exposures in SGD and JPY. In our opinion, SGD remains vulnerable to Sino-US trade tensions, while we believe that the yen is now more vulnerable to rising US-Japan interest rate differentials, renewed USD strength, and increasing concerns about growth and inflation prospects in Japan.
Last updated: 20 July 2018