Dollar Undervalued, Swissie Costs Too Much: Dighton

Dighton shorts Swiss Franc despite ‘safe haven’ status

The US dollar is undervalued, especially versus the Swiss Franc, which has been seen as the leading safe haven currency by investors in recent months because of the economic and budget limit issues in the United States, according to Dighton Capital Management, a managed futures fund managers.

Dighton says it is backing the greenback versus a basket of leading currencies –including sterling, the Japanese yen and the euro - by going long the Intercontinental Exchange (ICE) US Dollar Index. It is also exploiting what it sees as a 25% undervaluation of the US dollar versus the Swiss franc by selling franc futures.

While the current political wrangle over raising the maximum debt level in the US has caused some flows from the dollar to the franc, the almost inevitable resolution will only lead to a small bounce in the dollar because markets largely anticipate it. Dighton believes there will be a more significant readjustment in the exchange rate in the next three to six months, when investors will rush to exit the Franc.

Longer term, Dighton believes there is support for the US dollar and other currencies linked to commodities because of the positive outlook for the asset class. Dighton believes commodities will undergo another bull run once financial markets fully appreciate the threat of a global rise in inflation. Once inflation breaks out and gains momentum, accompanied by growing demand from the emerging world, commodities will offer long-only investors better growth potential than any other asset class, Dighton says.

Alex Moiseev, principal and chief investment officer, Dighton Capital Management, said: “The Fed has confirmed it will not launch QE3 any time soon and that supports a stronger dollar. The euro has become stronger due to speculation that the short-term situation in Greece will improve but the fundamentals are still bearish for the euro. The second main component of the USD index, the yen, will suffer in the medium-term from the effects of the earthquake, the huge debt/GDP ratio and the printing of money by the bank of Japan. For these reasons we are convinced that in the coming months the Dollar will strengthen significantly against the major currencies.

“The Swiss franc has appreciated 40% over the last 14 months and 20% over the last six. This bullish trend is losing steam and many technical indicators signal an imminent turnaround. Technically speaking, the Swiss franc is very toppish and a ‘double top’ has developed versus the Dollar. The strong appreciation of the currency is affecting the Swiss economy, prompting companies to officially complain to their government. The Swiss government has reduced its growth forecasts for 2011 and 2012. Therefore on both the technical and fundamental side we believe this position will pay off soon. It is indeed a highly appealing period for currency trading.”

Dighton believes that fears over the real value of money resulting from excessive quantitative easing and consistent devaluing of currencies by many countries will drive up prices of precious metals while growing demand from emerging market economies will raise prices of base metals, soft commodities and oil.

 

Dighton Capital Management has been operating since 2003.  It has a consistently attractive record of delivering high absolute returns, high liquidity and transparency, as well as low correlation with equities and bonds. It offers three funds that invest in managed futures, including the Dighton Balanced Fund, the Dighton Aggressive Segregated Portfolio and the Dighton Dynamic Allocation MSP.

For further information on Dighton Capital Management’s three investment funds visit www.dightoncapital.com.