3 Currencies to Think About Shorting

Over the past few weeks, it has becoming increasing clear which countries and their currencies are headed down the gutter:

The 3 currencies that I am most bearish for the near term are (in order of bearishness).

1. New Zealand Dollar - Targeting 70 Cents

The Reserve Bank of New Zealand cut interest rates last night for the first time in 5 years. With retail sales falling by the most in 4 years and consumer confidence hitting record lows, the New Zealand dollar has weakened to the lowest level in 6 months. With RBNZ Governor Bollard promising more rate cuts and the futures curve pricing such action, the New Zealand central bank has become the most aggressively dovish policy maker of the G10. As a result, I expect significant weakness in the NZD and for it to fall below 70 cents against the US dollar in the near future. Also look for AUD/NZD to hit new highs.

2. British Pound - Pace of Deterioration Will Increase

UK retail sales dropped by the largest amount in 22 years last month. Despite the hawkish tone of the Bank of England minutes, there is no way that the BoE will risk raising interest rates in the near future. Furthermore, the pace of deterioration in the UK economy will only accelerate, pushing the BoE closer and closer to a rate cut, especially if oil prices remain at current levels.

3. Euro - Stubborn Comments to Haunt the Euro

German business confidence, investor confidence and consumer confidence have fallen significantly. The manufacturing sector is beginning to crumble under the weight of the slower global growth, high interest rates and the strong Euro. The ECB is stubbornly hawkish, but expect this stance to come back and haunt them.

Comments

[Jim Coryea]

Kathy!!

Hey, I like the insight you give, albeit brief, but I agree wholeheartedly with your analysis... you were on Wall St. Warriors, weren't you? I remember seeing you on a few episodes, great to see you collaborating on this site. What do you think of Brazil's currency at this point? With the 75 bps raise yesterday defending against inflation, the currency seems relatively safe compared with others, but I recent article I read from Soc Gen has me concerned about the long term P/E valuations in most of the emerging markets. I'd be curious to hear your thoughts. Thanks!

[Jim Coryea]

Kathy!!

Hey, I like the insight you give, albeit brief, but I agree wholeheartedly with your analysis... you were on Wall St. Warriors, weren't you? I remember seeing you on a few episodes, great to see you collaborating on this site. What do you think of Brazil's currency at this point? With the 75 bps raise yesterday defending against inflation, the currency seems relatively safe compared with others, but I recent article I read from Soc Gen has me concerned about the long term P/E valuations in most of the emerging markets. I'd be curious to hear your thoughts. Thanks!

[phdinsuntanning]

Kathy,

for sure the germans dont like inflation and they are willing to accept less growth in 2009, that means a strong euro for some more time, even against high spending southern neighbours. Agreed on NZD it was a bubble, oil bubble looks to be correcting so the UK has not incentive to stop inflation fight, you need some perspective, not jumping in all the ships.

[phdinsuntanning]

so you really think the FED will increase the rates and do harakiri to wall street?

[phdinsuntanning]

last one, you are the one waiting euro/yen 170 at the end of the year and shorting the euro? the only way for that happen is a collapse on yen too = big carry trade, so you are very bullish on the US$ at the end. Only with Reagans resurrection...

[Henry Hub]

So you see a major rally in the US buck - HAHAHA
The Euro is going to $2.00 by the end of the year

[TaxConsultant]

Reckoning without the US Congress again? They will race any currency to the down side with bailouts profligate spending and shear criminal corruption. The SE Asian currencies may devalue a little, particularly NZ, but the dollar will be held back by USA policies to have the cake and eat it too. As for the Euro, who knows if it even survives this next five years. You are short sided.

[paultaut]

obviously you don't believe in the supply/demand equation.

Do you actually believe the world's supply of dollars is going to shrink ... any time soon??

[Zac]

I also believe the British pound is going to depreciate, at least against the Euro and some Asian currencies, is there a cost-effective way for an ordinary investor to short the pound?