The dollar’s rally isn’t over, according to one portfolio strategist.
The greenback has another year to 18 months to peak, said Ira Jersey, senior client portfolio manager of fixed income at OppenheimerFunds.
Jersey notes that the U.S. dollar index (DX-Y.NYB) tends to move in cycles lasting between 6 to 10 years. “The current dollar rally has lasted less than 5 years,” he said. “There's still more room to run.”
The dollar has strengthened against many emerging markets over the past year. For example, the Brazilian real (BRL=X) lost half its value against the buck, while the Russian ruble (RUB=X) is off by one-third in that time period.
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“Part of this is slowing growth in a lot of these countries,” Jersey said. “In the case of a country like Brazil, you've had not only slowing growth but also very high inflation. So you've seen significant depreciation.”
Even other major currencies like the yen (JPY=X), the euro (EURUSD=X), the yuan (CNH=X), and the Swiss franc (CHF=X) have also lost ground to the U.S. dollar. Jersey expects the trend to remain in place for next few months.
“A large part of the reason why we think that the dollar rally will continue is monetary policy divergence,” he said. “Central banks around the world are likely to continue to ease policy in places like China and the euro zone. However the United States and a few other countries are likely to actually hike interest rates and tighten policy. With slowing growth in a lot of emerging economies and the Federal Reserve hiking interest rates in 2016, we think that the dollar will continue its bull run.”
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