What's Best To Sell Against The Dollar?
eFXnews | Aug 07, 2015 06:15AM ET
The case for being long dollars is now mostly about the US. That is relevant in the case of the Australian dollar. The RBA this week removed the reference to wanting a weaker currency from its monetary policy statement. For months, there has been a reference to expecting further AUD weakness in light of soft commodity prices. The RBA actively promoting a weaker currency won’t prevent it from falling, if the Fed raises rates faster than expected, if the Australian economy weakens further or if commodity prices collapse further, but AUD is no longer one of our favourite shorts.
There’s a bit of upside in USD/JPY given its correlation with US rates, but if the driver of dollar strength is risk aversion and capital repatriation, the yen won’t be the biggest loser. At the other extreme, the most obvious short is still the Chinese Renminbi, but that it is not a freely floating currency. Its strength is a reason to be wary of commodities, rather than a trade in itself. And a reason to be short at least one of the commodity currencies: I choose NZD in G10.
But the stand-out overvalued currency on this chart is the Swiss Franc, and EUR/CHF is finally edging the SNB’s way. The technical analysis section of this weekly suggests longs in GBP/CHF."
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