China's growth rate is slowing, and investors are hoping for easier monetary policy. Here's how to trade the possibility.
Does China have a soft landing in its economic future? GDP growth is slowing, and other indicators are confirming the trend. Naturally, investors are hoping for easier monetary policy as a result, and Andrew Busch, global currency and public policy strategist for BMO Capital, has a plan to trade that possibility.
Busch thinks the key is what China's central bank does with reserve requirements. They were last loosened, by 50 basis points, just weeks ago, and Busch argues that if the next round is bigger than that, it will be time to enter a risk-on trade, buying the Australian dollar against the U.S. dollar. Australia is especially attractive for this trade, Busch says, given its close economic ties to China.
But he thinks it's more likely that the bank will cut less - and in that case he wants to sell the Australian dollar against the Swiss franc.
"This is the ultimate risk-off trade," Busch told CNBC's Melissa Lee.
Busch wants to enter the trade at 0.9805 with a stop at 0.9905 and a target of 0.9555, "a nice three to one return if we get it."
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