Despite a pullback after a six-day run, the U.S. dollar and currency-related exchange traded funds (ETFs) could be on course for a rebound after hitting a one-year low last week.
The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), which tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, dipped 0.5% Wednesday after rising 1.8% over the past six sessions.
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Goldman Sachs argued that the U.S. post-payroll rally shows that the market expectations for economic growth and Federal Reserve interest-rate hikes have caused the currency to be oversold, positioning the greenback for a rebound, reports Taylor Hall for Bloomberg.
“We remain dollar bullish and think the trajectory is higher from here,” Robin Brooks, Goldman Sachs’s chief currency strategist, told Bloomberg. “The reaction on Friday to a meaningfully weaker-than-expected payrolls was telling: We had a disappointing jobs number and the dollar actually bounced.”
[related_stories]Looking ahead, Goldman projects the USD will appreciate 15% over the next two years as U.S. monetary policy normalizes.
Goldman analysts also pointed out that traders are increasingly looking to overseas central banks to gauge the dollar outlook. For instance, the European Central Bank and Bank of Japan have played a large role in the USD’s recent weakness.
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“The Fed has been something of a sideshow for the dollar recently. After all, it was the decision by the BOJ not to take action last month that set in motion that last round of dollar weakening. The yen and the euro strengthened sharply, giving rise to the latest round of dollar weakening,” Brooks wrote in a note.
UUP includes a 57.6% tilt toward the euro currency and 13.6% to the Japanese yen. The euro was trading around $1.1429 Wednesday while the greenback was hovering around ¥108.45.
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PowerShares DB U.S. Dollar Index Bullish Fund