Goldman Sachs Group Inc. is recommending three currency trades for investors who want to position for where interest rates are heading.
(Bloomberg) — Goldman Sachs Group Inc. is recommending three currency trades for investors who want to position for where interest rates are heading.
Rather than trade the dollar, investors should focus on the yen, the euro and commodity currencies to get higher returns, strategist Karen Reichgott Fishman wrote in a note. Buy the yen to bet on lower US policy rates, or sell it for a contrasting playbook, she said.
The euro and commodity currencies are where investors can build wagers on equity markets as they get impacted by interest rates. Bears should short the Australian or Canadian dollar against the yen, while bulls could buy the euro against the Japanese currency, Goldman said.
“This bumpier backdrop for the dollar and broader lack of trending FX markets suggest that potential opportunities in non-USD G-10 crosses could drive larger returns,” Fishman wrote. “Our own baseline views look most supportive of some further tactical yen weakness on crosses, most likely in the case of higher rates and more range-bound equities.”
Market expectations for Federal Reserve rate hikes have swung back-and-forth in the past month as US economic data show some softening, while some question if the recent banking turmoil may impact lending. A gauge of the dollar strength has fallen 1.5% this year, opening opportunities for investors to trade currencies with clearer outlooks such as the yen that has remained under pressure from a dovish Bank of Japan.
UBS Global Wealth Management also recommends buying the Aussie, yen and Swiss franc, while Morgan Stanley Investment Management sees room for emerging-market peers to outperform.
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