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Market News Dollar at highest, Two trades could suffer if the U.S. dollar keeps climbing

Dollar at highest, Two trades could suffer if the U.S. dollar keeps climbing

Dollar advances to one-year high; U.S. debt ceiling impact muted; Two trades could suffer if the U.S. dollar keeps climbing from its 2021 peak.

Eden
2021-09-30
495

FENGMIAN.jpeg


The dollar surged on Wednesday to a one-year high against major currencies, boosted by increased expectations for a reduction in the U.S. Federal Reserve's asset purchases starting in November and an interest rate hike, possibly in late 2022.


The greenback also fared well despite an impasse in Washington over the U.S. debt ceiling that threatened to plunge the government into a shutdown.


dollar tu.jpeg

Photo: CNBC


The world's largest reserve currency, seen as a safe-haven bet at times of market stress, has strengthened in recent days as investors instead focused on fears of a global slowdown, a rise in energy prices and higher U.S. Treasury yields. read more


Traders are also concerned that the Fed will start to withdraw policy support just as global growth slows.


"Fed has sounded the starting gun on monetary policy normalization," Kit Juckes, macro strategist at Societe Generale, wrote in his latest research note.


"As the U.S. escapes the interest rate zero-bound, leaving the Eurozone and Japan behind, the global savings glut is set to be drawn towards the dollar, which can outperform the majority of other currencies in the coming year, and may start its move earlier than we expected," Juckes added.


The dollar index - which measures the U.S. currency against a basket of six major currencies - rose for the fourth consecutive day, to 94.435, its highest since late September of last year. It was last up 0.7% at 94.404.


Two trades could suffer if the U.S. dollar keeps climbing


The U.S. dollar’s strength could spell trouble for a few trades, market analysts say.


The dollar index hit a one-year high versus rival currencies on Wednesday as investors embraced the possibility of the Federal Reserve starting to wind down some of its stimulus by the end of the year.


If the rally continues, some industrial stocks could be in trouble, Fundstrat Global Advisors’ Mark Newton told CNBC’s “Trading Nation” on Wednesday.


“A lot of these industrials tend to get much of their revenue from overseas,” the firm’s global head of technical strategy said.


For one, Caterpillar derives more than 60% of its sales from outside the United States, he said.


“As the dollar has really surged ... industrials have been the weakest sector,” falling more than 3.5% since the dollar’s recent bottom on May 25, Newton said.


“My own technical projection suggests the dollar gets up near 95.35 between now and the middle part of October, so that could cause industrials to have a little bit more selling pressure over the next three to five weeks,” he said.


Caterpillar tu.jpeg

Photo: CNBC


Caterpillar’s stock could become attractive if that plays out, Newton said.


Though it would be “a compelling buy” in the $173-$175 range, “it does look like it needs a little bit more on the downside and we’re still in very much a weak seasonal time,” he said.


Caterpillar shares ended trading Wednesday down more than 1% at $197.87.


“So, 173 to 175 is the first area, then 167,” Newton said. “I do like buying dips for now. Trends remain negative and the dollar is still in a very persistent uptrend, so it’s right to be a little bit patient.”


Dollar dominance could also hurt another part of the market, Boris Schlossberg, managing director of FX strategy at BK Asset Management, said in the same interview.


“The biggest victim of this dollar rise is going to be gold,” Schlossberg said.


“As real interest rate yields improve because nominal yields improve, that’s going to put further downward pressure on gold,” he warned. “Add to that the fact that I think gold is now seeing very, very strong competitive pressure from crypto.”


That could keep a tight lid on prices, he said.


“I think gold goes below 1,700 and really disappoints a lot of the gold bulls,” Schlossberg said.

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