Synopsis:

Credit Agricole discusses the continued relevance of the "USD smile" concept, which suggests that the USD strengthens in environments of either heightened risk aversion or significant US economic outperformance. While the US dollar's rise due to interest rate advantages may be limited, spikes in risk aversion could bolster its resilience.

Key Points:

• USD and Risk Aversion: Many investors believe it's premature for a "Fed put" to influence markets significantly, suggesting that financial conditions in the US may tighten further. This outlook is bearish for risk, potentially strengthening the USD against risk-correlated currencies.

• Fed Put Perspective: A segment of investors argues that a "Fed put" was already in play earlier in the year during troubles in the US banking sector, leading to a different approach where risk-correlated currencies are seen as potential buying opportunities on dips.

• Currency-Specific Views: These investors are particularly interested in the prospects for currencies like the CAD, AUD, and NOK, seeking opportunities amid the current market dynamics.

Conclusion:

Credit Agricole indicates that while the "USD smile" might be under pressure due to diminishing rate advantages for the USD, concerns about increased risk aversion could maintain its strength, particularly against currencies tied closely to global risk sentiment. Meanwhile, a dissenting view among some clients suggests potential buying opportunities in select risk-correlated currencies, signaling a divergence in market strategies based on interpretations of the "Fed put" and its impact on financial conditions.