FMG Technical Analysis, page-2431

US dollar needs to weaken for commods to rise in price due to increased demand. We going to see a weaker US dollar in 2019.


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Are currencies signalling time to realign portfolios for a weaker US dollar?


Strategists and fund managers have noted the currency moves, with some commenting that it may be a sign that the US dollar's stellar run through 2018 is set to end.
"Foreign exchange markets move in cycles. The US dollar can't go up forever. The US is not an island. Problems in the rest of the world will affect the US as well," Vertium Asset Management chief investment officer Jason Teh says.
Global growth

Teh is referring to factors such as a slowing in the Chinese economy and other emerging markets which are in the direct line of fire from a US-China trade war. Trade tensions were neatly illustrated by weak third-quarter GDP data from Germany and Japan, both open economies where trade forms a significant component of growth.
"Volatility remains elevated, and concerns about the health of the global economy have re-emerged," Morgan Stanley economist Chetan Ahya says. The broker estimates that global growth decelerated to 3.4 per cent in the third quarter, from 4.1 per cent in the second quarter.
Still, Morgan Stanley is expecting global growth to move back to 3.6 per cent in the fourth quarter.
"The fading of temporary disruptions to growth in Germany and Japan, still healthy momentum in global trade and a sustained recovery in emerging markets ex-China should all lend continuing support to global growth," the Morgan Stanley economists estimate.
Teh also expects global growth to resume, but due to a weaker dollar.
"A rising US dollar is a foot on the neck of emerging markets growth. If the US dollar falls, then those countries can stabilise. If they can grow, then demand for commodities could be stronger," he adds. "I'm pretty sure that's what currency markets are trying to price."
For Teh, the turning point will come when the US Federal Reserve starts to talk about pausing. "When they start changing the tone to pause, then at some point in time you could see commodities rally."
While Australian investors may benefit from increased demand for commodities, there could be a reversal of some gains related to a strong US dollar and corresponding weakness in the Australian dollar.
For example, Australian gold firms have been getting a double benefit as gold is priced in US dollars but operating costs for most of these firms are based in local currency, Prime Value Asset Management chief investment officer ST Wong notes.
Offshore imports

Investors in companies importing goods from offshore such as JB Hi-Fi and Harvey Norman may want to keep an eye on them as they benefit from a higher dollar rather than a weak one, he says.
Companies such as James Hardie, Mayne Pharma Group and CSL have fairly significant exposure to US dollar earnings while other companies with offshore exposure include Aristocrat Leisure and Computershare. So says Elizabeth Tian, Citi's director of equity products.