Bank of America (BoA) reported that the downtrend for the US dollar has resumed after a large negative revision to non-farm payrolls data in early August.
The bank’s currency movement factor has now turned bearish for the USD, with options metrics showing signs of continued declines against the British pound, Swedish krona, and South African rand. Macro variables have also declined slightly, reinforcing the negative view on the US dollar.
BoA found that foreign exchange market investors were actively selling the US dollar ahead of the release of US Consumer Price Index (CPI) data on Tuesday. With the CPI data in line with market expectations and core inflation remaining moderate, the bank expects the USD bearish trend to continue.
Value factors are also giving a negative signal to the US dollar, with the Australian and New Zealand dollars now rated as undervalued according to BoA’s G10 dynamic factor model. The Swiss franc is identified as the most overvalued currency in the G10 group.
For developing markets, the BoA model shows the Indian rupee, Chilean peso, Indonesian rupiah, and Korean won to be undervalued, while the Taiwan dollar, Israeli shekel, and Polish zloty are seen to be overvalued.
