Goldman axes short-dollar call as US yields spoil bet

ALMOST six months after Goldman Sachs Group recommended shorting the dollar, it's calling it quits on the trade.

In a note titled "Tactical Retreat", Goldman's currency team closed its recommended short greenback position against a basket of Group-of-10 commodity currencies, including the Australian and New Zealand dollars. The firm joins hedge funds and other investors in capitulating on bearish dollar bets after surging Treasury yields triggered a rebound in the US currency, capsizing one of the world's most crowded macro trades.

"Although we still expect these currencies to appreciate versus the dollar over the coming quarters, firm US growth and rising bond yields may keep the greenback supported over the short-term," strategists including Zach Pandl wrote in a note on Friday. "After a choppy few months we are closing our recommended dollar short trade." What was a near-consensus call at the end of last year has come undone as improving economic data and an 80-basis-point surge in 10-year Treasury yields boosted the dollar's appeal relative to peers. The Bloomberg Dollar Spot Index has jumped nearly 3 per cent this year.

Since Oct 9 - the date the Goldman strategists issued a short recommendation on the greenback against two baskets of developed and emerging currencies - the dollar gauge has fallen about one per cent. The trade would have netted a 5 per cent gain since its inception, though it has been "roughly flat" since the start of the year, the strategists wrote.

Still, opportunities to short the US currency may re-emerge as Europe's pandemic situation improves, the Goldman team said. It sees the euro gaining about 3 per cent in the next three months to the US$1.21 level, before testing US$1.28 in a year.

The common currency traded around US$1.1750 on Monday.

"Clear evidence that Europe's Covid situation is getting under control would likely warrant fresh dollar short recommendations," the strategists wrote.

US employers added the most jobs in seven months with improvement across most industries in March, data on Friday showed.

For Win Thin, global head of currency strategy at Brown Brothers Harriman & Co, the better-than-expected release adds to evidence that the economy "is gathering momentum" and bolsters the case for a stronger dollar this quarter. "With vaccinations and reopening picking up, the labour market should continue to improve in April and beyond," he said. "The dollar should continue to power ahead." BLOOMBERG