UBS Advises Caution Amid US Dollar Boost - What You Need to Know Before Investing
The US dollar received a boost last week, but UBS has advised caution for those looking for a quick reversal of recent strength, only seeing very selective opportunities for now.
According to analysts at UBS, the moves in the market are fully in line with rate differential dynamics, and looking for a reversal in favor of a weaker USD may not be rewarding as the USD is not especially expensive on that basis.
With US elections looming, the outcomes remain uncertain, making short-term tactical trading more likely than persistent trends. However, if investors are willing to see through the election noise, more attractive entry levels may be available for the long-term.
UBS recommends going long on a 12 Dec ‘24 expiry 0.6850 call with an RKO at 0.7100, as a way to hold on to their core views during potentially choppy price action.
Positive AUD views have been reinforced by a bounce in commodity prices on the back of China's stimulus, which has led to a shift in speculative positioning towards a long AUD stance.
At 04:55 ET (08:55 GMT), AUD/USD traded 0.3% lower at 0.6727.
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Analysis:
UBS is cautious about the recent strength of the US dollar and advises against expecting a quick reversal. The upcoming US elections add to the uncertainty in the market, making short-term tactical trading more likely. However, for investors looking at the long-term, attractive entry levels may be available. The recommendation to go long on a specific call option provides a strategic way to navigate through potential price fluctuations. Positive views on the Australian dollar are supported by commodity price increases due to China's stimulus. Overall, understanding these dynamics can help investors make informed decisions about their investments and financial strategies.