Goldman Axes short dollar call as US yield

Photographer: Michael Nagle / Bloomberg

Nearly six months after Goldman Sachs Group Inc. recommend it if the dollar shortens, it is a call to trade.

In a comment titled ‘Tactical Retreat’, Goldman’s currency team closes its recommended short position against a basket of group-of-10 commodity currencies, including the Australian and New Zealand dollars. The firm joins hedge funds and others investors who capitulate their clumsy dollar bets after rising treasury yields caused a surge in the US currency, which overturned one of the world’s most volatile macro transactions.

“While we still expect these currencies to rise against the dollar in the coming quarters, solid US growth and rising yields may maintain short-term support in the short term,” strategists including Zach Pandl wrote in a note on Friday. “After a difficult few months, we are closing our recommended dollar short trade.”

What was a the end of last year almost undone consensus as an improvement of the economic data and a rise of 80 basis points in the ten-year yields by the Treasury, increased the attractiveness of the dollar relative to peers. The Bloomberg Dollar Spot Index jumped nearly 3% this year.

Since October 9 – the date on which Goldman strategists issued a brief recommendation on two baskets of developed and emerging currencies over the greenback – the dollar has fallen by about 1%.

Trading would have increased by 5% since its inception, although it had been ‘roughly flat’ since the beginning of the year, the strategists wrote.

Read more: Macro traders can care less for fear of dollar depreciation

However, the Goldman team said that opportunities to shorten the US currency could re-emerge as the European pandemic situation improves. It sees that the euro will rise by about 3% to $ 1.21 in the next three months, before testing $ 1.28 within a year.