The Strategist

Six best currency strategies until the end of 2017

09/14/2017 - 14:31

Currency strategists of Japanese financial company Nomura believe that the dollar expects a prolonged decline. But there are also investment ideas in other currency pairs.

Currencies have recently become very sensitive to any changes in the economic and geopolitical situation in the world. And if geopolitical risks affect the market only in the short term, global changes in the policy of the largest central banks form new trends.

On the eve of the year’s end, Nomura analysts give six main recommendations.

1. Stick to the "bearish" positions on Dollar

Nomura has already held a "bearish" position on the dollar against the euro, and now the yen has joined the list now. The company expects the dollar to enter the first year of the multi-year downtrend.

The main reason, in her opinion, is the dull political picture of the US: "The recent increase in the debt ceiling and quiet state financing until the end of the year will make investors worry about a possible negative situation in the US in the coming months. In addition, the administration and Congress will have to deal with the consequences of hurricanes Harvey and Irma, tax reform, North Korea and, possibly, the investigation of Mueller. "

Also Nomura experts added that there is one more nail that can be hammered into the dollar’s coffin: profitability in Germany and Japan is zero, which means that the risk of falling is very limited, unlike the in the US.

According to the company, the euro could reach $ 1.25 or higher in the coming months; the dollar/yen could fall to 100-105.

2. Sell British Pound against Canadian Dollar

Nomura experts added that if earlier it was necessary to sell the pound against the euro, as well as the dollar and New Zealand dollar, now the Canadian dollar is added here.

This can be partly explained by the situation around Brexit: "If there are signs of changes in the negotiations on the Brexit issue, they remain insignificant." The media is full of headlines about rather fruitless negotiations. "

On the other hand, Canada's forecast included a movement "from strength to strength," and the dynamics of economic growth was not only the strongest among the G8 countries, but also large-scale, the company said. It is expected that the Bank of Canada will raise interest rates in December and then once again in 2018.

3. New Zealand Dollar looks vulnerable

Nomura believes that the New Zealand dollar will fall against the Australian dollar.

"There are some encouraging signs in the Australian economy: increasing investment intentions, improving business conditions and dynamics in the labor market," the company said, adding that, although the Reserve Bank of Australia was slow to raise rates, the next step is likely to be aimed at raising. "On the contrary, growth rates in New Zealand remain sluggish, while inflationary pressures persist," the company said in a statement.

Nomura added that there is another factor playing against New Zealand dollar: prices for New Zealand's basic export commodity, whole milk powder, are not high enough compared to Australia's commodity prices, such as iron ore, for example.

4. Dollar vs. Chinese Yuan

According to Nomura’s experts, the dollar faced corporate sales against the yuan, as Chinese officials are interfering in the market and changing the rules of capital outflow.

"This may continue in the coming months and provide support for the entire flow," the company's experts said. They also added that the dollar/yuan exchange rate will fall to 6.40 in the coming months.

5. Watch for the South African Rand

Nomura told about the long-term volatility of the dollar and rand pair, noting that, despite a large number of events related to internal risk within the next few months, the currency’s value is not accurate.

6. The decisive moment for the peso

Experts Nomura noted the need to form a position on the Mexican peso against the peso of Chile.

"We expect that the Chilean peso will become the most effective currency in Latin America amid the economic recovery, high copper prices and the likelihood that the center-right candidate will win the presidential election in November (reducing the depressed expectations of the business, partly due to the reforms of the current left-of-center government), the report said.

On the other hand, we believe that the Mexican peso will continue to face the risk of falling amid uncertainty related to the NAFTA negotiations and the upcoming presidential elections. "