UBS sticks to buy-dollar-on-dips call. Here is why

Investing.com -- UBS told clients in a note Wednesday that buying the dollar on dips remains the right approach, as long as energy prices stay elevated and the AI investment narrative holds.

Strategist Shahab Jalinoos described a relatively subdued week in G10 currency markets, with the France-Germany 10-year yield spread stabilizing around 140 basis points.

He said that level remains uncomfortable from France’s perspective and continues to support the view that the EUR/USD is a “sell rallies” proposition.

UBS expects a fourth-quarter range low of 1.1050 for the euro to be tested, while leaving its end-2026 target at 1.1200.

Jalinoos noted tentative signs that diesel prices may be nearing stabilization, providing some support for the euro. However, Europe remains exposed, with exceptionally low natural gas inventories and gas futures at new cycle highs.

Recent softness in technology stocks may encourage some dollar consolidation, and weaker-than-expected inflation data could lower tightening expectations further out the curve.

“Our core view remains nonetheless unchanged: as long as energy prices remain elevated and the AI-driven investment narrative remains intact, buying USD on dips will remain appropriate,” he wrote.

On commodity currencies, UBS believes the Australian, New Zealand and Canadian dollars are in consolidation mode, but limited pricing for rate hikes leaves all three positioned to recover September’s losses. The Canadian dollar is the firm’s preferred tactical long.

Jalinoos also pushed back on the idea that Japanese selling of French debt will drive yen strength, saying balance of payments data show exposure has already fallen considerably.

Original Article

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