RBS Global Currency Themes

  • Policy divergence is still a dominant directional theme: Short EUR/USD. Improvement in Euro activity data is meaningful. But the (dis) inflation story can dominate ECB policy choices for longer. Meanwhile the Fed patiently, cautiously considers first tightening timing.
  • Sterling probably still does well on the crosses until we get much nearer the UK election: Short EUR/GBP. Swiss franc looks an agreeable alternative funding currency with negative rates set to get more negative: Long USD/CHF. Also short CHF/JPY as wider discussion begins to rumble in Japan around the cost/benefit of more QE.
  • Reserve Bank of Australia was about as clear as a central bank can be that a rate cut is coming: Short AUD/USD.
  • Meanwhile, Reserve Bank of New Zealand has referenced new macro prudential policy plans to cool the housing market which gives renewed scope for RBNZ rate cuts later this year: Square AUD/NZD shorts.
  • Bank of Canada tried to suggest that its January rate cut was ‘one and done’, more hawkish than we expected. Nonetheless, it has left the door open to more policy easing ‘insurance’ if needed: Long USD/CAD.
  • EMFX performs very badly. It’s the pace as well as the scale of this global Dollar move that carries risky consequences – fast directional Dollar moves tend to bring stress in their wake, especially to EM: Long USD/TRY.
  • Asia has borrowed trillions of dollars throughout the Fed QE years and Asian regional currencies are acutely vulnerable as this global USD rally re-gathers pace: Long USD versus MYR, SGD, TWD, and KRW.
  • Weak Norwegian data raises pressure on Norges Bank for faster rate cuts: Short NOK/SEK.

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