The firm argues that the dollar will remain supported in this market environment
NAB's head of FX strategy, Ray Attrill, argues that liquid dollar assets have always been the optimal investment choice when risk aversion is highly elevated as it is now.
"We still see the dollar remaining very well supported unless or until we see a material and sustainable decline in risk aversion globally. The global economy is contracting fast, not just the US, so it's way too soon to be thinking about currencies in terms of relative economic merits, relative yields, etc."
Adding that while dollar funding stress may ease in the near-term, that in itself won't undermine the strength in the greenback so long as risk aversion remains elevated.
"When we can start thinking about a global economic recovery, and which will likely be China, not US led, only then can we expect to start seeing the dollar depreciate in any meaningful way. That scenario currently look to be months into the future, at best."
This is a good way to put things into perspective but amid the persistent worries about economic weakness globally and risk aversion associated with it, I would still argue that the yen could stand to benefit more than the dollar during this period.
Again, this comes back to the question of orderly and disorderly risk aversion in the market. If emerging markets continue to see an epic squeeze in dollar needs, then it could start to lend towards disorderly risk aversion and the greenback will benefit strongly.
But in a controlled and orderly risk-off grind over the next few weeks, the yen has great prospects to be the big gainer but the dollar should be just right behind it nonetheless.
