Deutsche Bank AG's team of currency strategists has advised market participants to refrain from broad dollar bets and to concentrate on relative-value opportunities among FX crosses, citing geopolitical friction in the Gulf and the global cycle of investment in artificial intelligence as dominant market influences.
"We stay on the dollar sidelines for now and focus on FX crosses," wrote George Saravelos and his colleagues at Deutsche Bank. The strategists added that their confidence in a renewed, broad-based dollar downtrend resuming this year has diminished, noting the Strait of Hormuz remaining impassable as a salient factor.
The bank outlined two distinct groups of currencies that it believes merit attention from traders.
- Commodity and carry beneficiaries: The strategists cited the Australian dollar, Norwegian krone, Brazilian real and Malaysian ringgit as currencies currently advantaged by high commodity prices, elevated capital expenditure and attractive carry.
- Policy-defendable or oversold currencies: The Chinese yuan, Japanese yen and British pound were identified as currencies where authorities either have both the willingness and means to defend against shocks, or where excessive negativity may already be priced into markets.
Deutsche Bank's team also observed that the United States stands to gain from both the artificial intelligence investment cycle and higher commodity prices. Alongside that, the strategists drew attention to substantial uncertainty about how the Federal Reserve will react going forward following a change in leadership.
Finally, the bank acknowledged that a number of geopolitical boundaries have been crossed over the past twelve months, a trend that has broadly contributed to dollar weakness.
The guidance from Deutsche Bank is explicitly tactical: keep the dollar on the sidelines for now and seek relative-value opportunities across FX crosses, with an emphasis on commodity-exposed currencies and those with policy backstops or deeply discounted valuations.