After significantly underperforming due to the potential US diesel export ban, the Chilean peso is now considered a symmetric risk. Analysts believe the negative news is fully priced in, meaning any positive developments or mitigation could lead to a tactical recovery greater than other currencies.
While not directly importing from the US, South Africa imports more diesel products as a share of its GDP than even directly affected countries like Chile. This makes its currency highly vulnerable to a global price shock from a US ban, a risk that the market has potentially overlooked.
Despite strong fundamentals, the US dollar had been trading cheaply relative to short-term fair value models. This valuation gap, or risk premium, has started to collapse following the recent FOMC meeting, suggesting the dollar now has a valuation tailwind in addition to fundamental support from rates.
The Swiss National Bank's dovish stance and comfort with currency depreciation provide a 'green light' for traders to short the franc. This contrasts with Japan's verbal interventions to support the yen, signaling a rotation where the Swiss Franc and Swedish Krona are becoming the preferred funding currencies for carry trades.
The primary driver of currency markets is rotating between US interest rate repricing (favoring the dollar) and the appeal of carry trades. While the dollar is currently in favor, this dynamic suggests that once US rates stabilize, capital could quickly flow back into carry strategies, creating a cyclical leadership pattern.