The New Zealand Dollar is hitting new highs.
The kiwi, like a lot of commodity-related currencies, is crushing the U.S. Dollar.
This is a big deal. If you’re a U.S.-based investor, it’s huge. It’s a classic example of a macro divergence.
Stocks as an asset class tend to like a weaker dollar. A strong dollar is consistently a headwind for stocks.
I predicted this massive unwind in December – positioning was at historic extremes.
Well, it’s happening.
And it continues to create huge opportunities for you.
This Is a Big Divergence
We continue to see strength coming from foreign exchange (forex) markets all over the world.
Upside participation across emerging markets currencies is expanding.
You’re seeing the New Zealand Dollar hitting year-to-date highs Monday:
It’s happening.
And, as I learned from the great John Roque, “We’re not in a ‘reversion to the mean’ business. We’re in a ‘reversion beyond the mean’ business.”
I find this to be particularly true when coming off extremes.
This U.S. Dollar situation is “reverting beyond the mean.”
Coming off multi-year highs at the end of 2024, we’re moving in the other direction… and fast.
So, again I ask, why should we care so much if we’re looking for opportunities in stocks?
A weaker U.S. Dollar is a tailwind for those trades.
We’re exploring actively in China, including equity and options positions in Baidu (BIDU).
And we’re looking for more opportunities to profit from a weaker U.S. Dollar across emerging markets…
Where’s Next?
You know we’re buying China.
Next, we’re looking at you, Latin America 👀
Here’s the Brazilian Real:
Is Mexico Latin America or North America? Not really sure…
But here’s the Mexican Peso vs the U.S. Dollar:
Canada is definitely “North America.”
And the Canadian Dollar is also hitting its highest levels against the U.S. Dollar since November:
I treat the Canadian Dollar like the emerging-market currency of the developed-market universe.
Like many emerging markets, it’s much more correlated to commodities and financials. Latin America is full of these types of markets.
They don’t have massive Tech stocks in Chile. They dig holes in the ground and look for rocks.
These countries are just built differently.
Canada has a ton of natural resource exposure too. The Canadian Dollar ripping to new highs makes sense in that environment.
A weaker U.S. Dollar means big things for commodities and commodity-related stocks.
This is a secular macro squeeze – and there will be many more opportunities coming.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs