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Sell the Aussie and Kiwi dollar, buy the yuan, says ANZ

Key Points
  • "The trade we've been recommending is to short the Australian dollar against the Singapore dollar, and to short the New Zealand dollar against the yuan," ANZ Head of Asia Research Khoon Goh told CNBC on Friday.
  • This week, the Reserve Bank of New Zealand shocked investors when it announced its next move in interest rates was more likely to be a cut. The New Zealand dollar was hit while the Australian dollar also weakened.
  • Goh said he was also bearish on the euro in the near term, predicting that it would weaken against the dollar and "break the 1.10 level."
Ten new zealand dollar with coins
Angelo NZ | Getty Images

Investors should sell the Australian dollar and New Zealand dollar, and put their money in the Chinese yuan and the Singapore dollar instead, according to the Head of Asia Research at ANZ bank, Khoon Goh.

"The trade we've been recommending is to short the Australian dollar against the Singapore dollar, and to short the New Zealand dollar against the yuan," Goh told CNBC on Friday.

Shorting is a trading strategy that involves selling a borrowed stock or currency, with a view that it will drop in value, and can be bought back later at a lower price.

"I think that provides a good mix of play into the dovishness of the antipodean central banks and also the resilience of the Asian currencies," Goh said, referring to the central banks in Australia and New Zealand.

This week, the Reserve Bank of New Zealand shocked investors when it announced its next move in interest rates was more likely to be a cut. The Kiwi dollar was hit as a result on Wednesday, dropping 1.6 percent to below $0.68, while the Australian dollar weakened half a percent to $0.71.

The Australian dollar has also been hit hard this year, pummeled by twin concerns of its own economy and that of China — it's largest trading partner.

While Goh is expecting both those currencies to fall in value, he was a little more positive on the Australian dollar, saying that there was "further scope for the Aussie to outperform the Kiwi."

Comparatively, Goh said he was "fairly optimistic about the Chinese yuan."

"We're expecting the yuan to appreciate over the course of this year, largely on the back of our view that Chinese growth will start to stabilize in the second quarter as it responds to the various stimulus measures," he said.

The euro

Goh said he was "bearish" on the euro in the near term, predicting that it would weaken against the dollar and "break the 1.10 level."

On Friday, the euro was around 1.1225, weakening from levels above 1.13 the week before.

He pointed to current and upcoming developments for his forecast: Elections in Europe in May, and weak economic data in the region.

"We ... have European elections coming up in May, which could well see the populist factions gaining further support. The economic data from the Eurozone is still looking quite ugly," Goh said.

Germany's manufacturing activity dropped to its lowest level in more than six years in March, according to data from IHS Markit this week; while manufacturing in the eurozone also fell to its lowest level since April 2013.

"So you put that altogether, it certainly suggests that there is more downside in the euro over the coming three months," Goh said.

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