Goldman Sachs is noting that even with potential for dollar weakness coming through, there is caution to be heeded in chasing commodity currencies as the play for that. The firm says that the AUD, NZD, and CAD have all touched or nearly touched their 3-month targets but have since eased against the dollar.
Adding to that, they are noting that the three currencies mentioned are showing a lag compared to higher-carry EM currencies with unusual relative weakness being observed.
So, what gives?
Goldman Sachs is arguing that risk sentiment alone isn’t enough to explain what is happening. Instead, this seems more to do with domestic policy shifts with terminal rate pricing falling in Australia, New Zealand, and Canada. The firm adds that weaker domestic backdrops are also in play, warranting caution for the respective commodity currencies above.
In taking advantage of downside catalysts for the dollar – which the firm attributes to Fed easing, policy uncertainty, and global flows – there are better options via the EUR and JPY
