COMMENT-This may be a year of two halves for the dollar

This may be a year of two halves for the dollar with delays to the expected easing cycle underpinning a higher-yielding dollar in the first half, while cuts to U.S. interest rates undermine the larger investment in the dollar that has resulted in the second half of this year.

Where the first cut of the expected easing cycle was eyed in March, it is now seen in June at the earliest and the U.S. interest rate is seen dropping towards 4.75% in December when previously it was eyed below 4.00.

Although expectations for stimulus have been dialled back, stocks have still soared to record highs, and yet major currencies have remained quiet, trading levels that have become very familiar in the last year.

When currencies are quieter, the importance of interest rates grows, and because a safer dollar is also the highest-yielding major currency, investors will naturally gravitate towards it.

The speeds and size of any subsequent decline will largely depend upon how many dollars are purchased in the first half of this year. Gauged by data on speculative positions, there is lots of room for growth without overly restraining the dollar's potential to rise.

IMM traders are neutrally positioned (long $0.5 billion), and while the latest Reuters poll shows a growth in demand for dollars, no bet is large. IMM traders are being drawn to carry trades - long dollar vs majors and short vs high-yielding emerging market currencies. In the past, the net position has exceeded $20 to $25 billion before materially impacting the dollar.

If investment in the dollar does not increase dramatically then the dollar may remain well supported when interest rates decline, and might rally.

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