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Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the **foreign exchange (FX) market** and the **cross-border flows** as analyzed by BofA Global Research. Core Insights and Arguments 1. **Consolidation of FX Flows**: The FX flows in Q3 are characterized by consolidation, particularly after significant positioning adjustments in the first half of the year. Investors have favored USD, CHF, and emerging market (EM) currencies against JPY, GBP, and CAD [1][7][8]. 2. **Investor Positioning**: Among BofA investors, USD short positions are relatively light compared to historical levels, indicating a cautious approach towards USD selling [4][5]. 3. **Hedge Fund Activity**: Hedge Funds have shown a notable demand for Brazilian Real (BRL) and have been net sellers of EURGBP, while also supporting GBP recently [7][8][13]. 4. **G10 Currency Trends**: GBP has benefitted the least from USD supply year-to-date, with Hedge Funds primarily supporting it, joined by Asset Managers in the last week [9][10]. 5. **Emerging Market (EM) Focus**: Latin American currencies have seen strong demand in Q3, with BRL demand highlighted. In Asia, there was notable demand for Indonesian Rupiah (IDR), while in EMEA, Hungarian Forint (HUF) demand was significant amid geopolitical developments [13][20]. 6. **FX Options and Futures**: The report includes a snapshot of FX options and futures flows, indicating varied positioning across different currencies, with USD options showing a positive z-score recently [22]. Additional Important Details 1. **Aggregate Positioning Data**: The report provides detailed aggregate positioning data for various currencies, indicating shifts in investor sentiment and positioning over time [24][32]. 2. **Risk Considerations**: The report emphasizes that trading ideas and investment strategies discussed may involve significant risks and are not suitable for all investors, highlighting the need for experience and financial resources to absorb potential losses [6]. 3. **Future Reports**: The next report on Liquid Cross Border Flows is scheduled for release on September 1st, indicating ongoing monitoring of FX flows and positioning [6]. This summary encapsulates the key points discussed in the conference call, providing insights into the current state of the FX market and investor behavior.

Investment Rating - The report maintains a high conviction level on several currency pairs, including short CNH against an equal-weighted basket (EUR, AUD, KRW) at 4/5, long EUR/INR at 4/5, and long USD/HKD outright at 4/5 [6][10][16] Core Insights - The report suggests a bias towards a weaker USD, despite some short-term headwinds from stronger-than-expected US nonfarm payroll data [8][12] - Key focus points include potential changes in US trade agreements and the influence of Fed Chair Powell's position on USD strength [11][20] - The report highlights the importance of monitoring developments in US tariffs, particularly concerning Japan and other major trading partners [19][20] Summary by Sections Asia FX Strategy - The conviction level on short CNH against an equal-weighted basket has been raised to 4/5, targeting a 4% return by the end of July [11] - Long EUR/INR is favored with a conviction level of 4/5, driven by RBI's bias to maintain FX reserves and local growth slowdown [17] - Short USD/TWD is maintained at a high conviction level of 4/5, with expectations of continued foreign equity inflows and robust local fundamentals [15] G10 FX Strategy - Long EUR/GBP is retained at a conviction level of 4/5 due to fiscal pressures on GBP and potential for further deterioration in economic data [21] - Short USD/JPY recommendations are maintained, with expectations of downward pressure on USD against JPY amid rising tariff risks [19][20] - The report indicates a modestly positive outlook for AUD, with expectations of a rate cut from the RBA [22] Asia Rates Strategy - Conviction on pay 10y HK IRS is raised to 4/5 due to increased HKMA intervention and expectations of upward pressure on USD/HKD forwards [25] - The conviction on pay 5y outright in China is maintained at 4/5, while the conviction on 2s5s steepener is reduced to 3/5 [26] - In India, a 2y NDOIS receive position is maintained, with limited near-term catalysts expected [27]

Investment Rating - The report maintains a positive outlook on Emerging Markets (EM), indicating a favorable investment environment due to the depreciation of the USD and supportive local currency bond flows [1][19]. Core Insights - The depreciation of the USD is expected to continue benefiting EM local debt returns, with significant inflows into EM local currency funds observed recently [1][19]. - The report highlights the importance of upcoming US Treasury auctions as potential indicators for EM performance, particularly in the context of equity and fixed income returns [14][19]. - Structural international positions are not shifting significantly, which is likely to sustain inflows into EM credit and local currency bonds [19][20]. Summary by Sections Emerging Markets Overview - The report discusses the ongoing depreciation of the USD and its implications for EM, suggesting that tariffs-related issues may continue to limit USD strength [1][14]. - Local currency bond flows are expected to be supported by both external and internal factors, with recent performance tracking positively [19]. Asia Focus - In China, the USDCNY is below fixing levels, and upcoming fixings will be crucial for assessing policy bias, with expectations for lower rates from the PBoC [2][32]. - Indonesia is highlighted as a bullish opportunity, with expectations for the IDR to appreciate due to returning portfolio inflows and a favorable economic backdrop [37][38]. - The Philippines is expected to see a gradual decline in yields, with current underperformance likely to be short-lived as supply dynamics improve [42][44]. CEEMEA and LatAm Insights - In Israel, economic fundamentals are becoming more relevant as the conflict nears resolution, with inflation and growth trajectories under scrutiny [3][48]. - Colombia's fiscal rule suspension and labor reform efforts are noted, with macroeconomic data showing resilience despite a cautious outlook on cash positions [3]. - The report maintains a neutral stance on rates in CEEMEA while expressing a positive outlook on duration in Mexico and Brazil [29][30].

Investment Rating - The report maintains a bearish outlook on the US dollar due to moderating US exceptionalism and a more growth-supportive monetary and fiscal mix overseas [6][11][14]. Core Insights - The report highlights that while tariffs remain a headwind for global growth, several currencies such as Antipodeans, NOK, EUR, and JPY are expected to turn the corner on growth [6][11]. - In developed markets (DM), the bearish USD recommendations are barbelled for either a US slowdown (long JPY) or a soft landing scenario (long Scandis, Antipodean, EUR) [6][11]. - In emerging markets (EM), there is a broadening overweight across regions with a preference for Asian creditor currencies (like KRW) and CEE euro-proxies (like CZK) [6][11]. - The report emphasizes that 2025 is different from previous years as no single factor is dominating global FX returns, necessitating a separate analysis of G10 and EM [6][11][24]. - G10 FX forecasts remain unchanged for EUR/USD at 1.22 and USD/JPY at 139, with upgrades for GBP, NZD, and CAD based on improved domestic prospects [6][11][48]. - EM forecasts include a reduction for USD/CNY to 7.15 and USD/ZAR to 17.50, reflecting a more favorable outlook for these currencies [6][11][48]. Summary by Sections Key Currency Drivers - The report identifies several macroeconomic factors influencing FX returns, including US-China trade talks and tariff adjustments [7][8]. - It notes that the reduction of tariffs from 145% to approximately 41% for a 90-day period is a significant development [7][8]. FX Models - The report discusses the performance of various currencies and highlights that the best-performing currencies are often those with current account surpluses [24][25]. - It also notes that the carry-to-value rotation is finally playing out in G10, with surplus countries outperforming [24][25]. G10 FX Short-term Fair Value - The report maintains forecasts for major currency pairs, with a bullish bias on EUR and JPY due to US moderation [56]. - It also highlights that GBP and NZD forecasts have been upgraded based on growth resilience and improved domestic conditions [56]. Technicals - The report indicates that external balances, particularly current account surpluses, have been among the best signals for global FX returns this year [24][25]. - It emphasizes that equity momentum has been a strong strategy for G10 currencies, benefiting from lower policy activity among central banks [24][25]. Trade Recommendations - The report suggests rotating AUD/USD into a long AUD and NZD basket against USD, citing improved domestic prospects for New Zealand [41][56]. - It also recommends an overweight position in EM currencies, particularly in Asia and EMEA, while remaining selective in commodity and frontier markets [23][56].

Investment Rating - The report maintains a bearish view on the USD, driven by underlying fundamentals rather than expectations of any multilateral accords [4][6]. Core Insights - The potential "Mar-a-Lago Accord" has been a topic of discussion among FX market participants, aimed at engineering USD weakness through various approaches, including punitive tariffs and adjustments in FX reserves [2][3]. - Recent USD weakness has been primarily European-led, attributed to a macro re-think regarding US exceptionalism and structural changes in US international policy [4][5]. - Asian FX appreciation has sparked speculation of a currency accord, indicating a potential shift in trade negotiations with the US [6][20]. - The report suggests that if USD/Asia continues to weaken, it would benefit cyclical currencies and broaden the dollar weakness, particularly impacting EUR/USD positively [40][41]. Summary by Sections USD Weakness Drivers - The report identifies cyclical and structural factors contributing to USD weakness, including declining real policy rates and a shift in US fiscal policy [5][9]. - Historical data indicates that the most bearish periods for the dollar occur when the term premium rises alongside a decline in Fed terminal rates [9][13]. Asian FX Dynamics - Recent movements in Asian currencies, particularly TWD, have broken historical records, leading to significant declines in USD against various Asian currencies [21][24]. - The report highlights that speculation around a currency accord has likely contributed to the strength of Asian FX, despite the absence of official confirmation [28][34]. Trade Recommendations - The report recommends buying AUD/USD and AUD/NZD, while suggesting selling USD/JPY and CHF/JPY as part of a macro portfolio strategy [65]. - It emphasizes that cyclical currencies like AUD are well-positioned to benefit from a potential rollback of tariffs and improved trade conditions [41][61].