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Investors should look to buy emerging market currencies against the US dollar, two badysts told CNBC on Monday.
These calls come as the US Federal Reserve appears to be seriously considering lowering US interest rates. When dollar investments start to produce less interest, this may weaken the greenback against the currencies of high interest rate countries – including many developing countries.
"What we're seeing now is that the dollar is probably outperformed by a number of emerging market currencies," said Mike Ryan, head of investment for the Americas at UBS Global Wealth Management.
"We believe that there is a basket of emerging market currencies that looks attractive as the Fed is about to start lowering rates rather than increasing them," he said. CNBC, "Street Signs".
This does not reflect widespread weakness in the US dollar, he added, noting that other central banks in developed countries also seek to play a pivotal role in interest rate policy.
Khoon Goh, head of Asian research at ANZ Bank, echoed this view.
"We already have easing measures (Australian and New Zealand central banks), so I think we're in this situation where carry-on operations will come back into fashion," he said. "Squawk Box" from CNBC.
The term "carry trade" refers to a strategy in which investors borrow in a low interest rate currency in order to acquire badets in a higher rate currency. In this way, they can draw from their investments in another currency while paying less interest the amount borrowed.
Goh said that ANZ continued to favor some Asian currencies such as the Indian rupee and the Indonesian rupiah. The benchmark interest rates in India and Indonesia are respectively 5.75% and 6%, compared to the Fed's target of between 2.25% and 2.5%, according to Trading Economics .
The US dollar index is "a bit more confusing", but it is clearer for the high-yielding currencies of countries with a "compelling growth story" or economic reforms likely to boost foreign capital inflows, he added.
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