Nomura Group, the financial services giant based in Japan, recommends six currency trades that it predicts will be profitable through the end of 2017, with one of its key underlying assumptions being continued weakness in the U.S. dollar, CNBC reports. Nomura already had recommended shorting the dollar versus the euro, but now it's also forecasting that the dollar will decline in value versus the Japanese yen and the Chinese yuan.

Tweeting Weakness

That's the title of the section in Nomura's report devoted to the U.S. dollar, according to CNBC. In short, Nomura believes that no amount of pro-dollar tweeting by President Donald Trump is likely to prevent a multi-year decline in its value. Their main concerns revolve around the debt ceiling and government funding, with the prospect that a longer-range agreement won't be struck before the current extension expires at year end. The impacts of Hurricanes Harvey and Irma, the lack of progress on tax reform, contentious debates about immigration, tensions with North Korea, and investigations swirling around the president regarding ties to Russia all contribute to a murky political situation in Washington, according to Nomura.

Short Dollars vs. Euros and Yen

Nomura's first recommendation is to keep shorting the dollar versus the euro, while also betting that it will fall against the yen. While interest rates are low in the U.S., they nonetheless are higher than in Japan and Germany, where bond yields are near zero. For this reason, Nomura sees more limited downside risk for the yen and the euro than for the dollar. As of 8:45 AM New York time on Thursday, the spot price of the euro was $1.19, per Bloomberg Markets, and Nomura sees it rising to $1.25 or more in the next few months. Meanwhile, the dollar buys just over 110 yen, also according to Bloomberg, and Nomura forecasts that the price of a dollar will drop to between 105 and 100 yen.

Short Dollars vs. Yuan

The second of the six new recommendations by Nomura is to short the dollar versus the Chinese yuan. Nomura expects that Chinese officials will continue to intervene in the markets in upcoming months to support the yuan, and they predict that the value of the dollar will fall to 6.40 yuan. As of 8:45 AM New York time on Thursday, the spot price of the dollar was 6.56 yuan, according to Bloomberg Markets.

Brexit Bets

Nomura expects Brexit to be a negative for the U.K. economy, and thus already suggested shorting the pound versus the euro, the U.S. dollar, and the New Zealand dollar. For its third new trade, Nomura says to short the pound versus the Canadian dollar. Economic growth in Canada is stronger and more broadly-based than in any of the other G-10 advanced industrialized nations, Nomura says.

Three More Plays

While Nomura likes the New Zealand dollar versus the British pound, it believes that it will lose value against the Australian dollar. The Australian economy appears to be gaining more momentum than New Zealand's. Also, central bankers in Australia are likely to raise rates, while New Zealand's probably will hold the line, given mature economic conditions and the dampening effect that an already highly-valued New Zealand dollar has on exports. Moreover, the prices of key commodities exported by Australia, such as iron ore, are showing signs of greater strength than those of New Zealand's top exports, such as whole milk powder.

The price of the South African rand insufficiently reflects domestic risks, prompting Nomura to go long on dollar/rand volatilities, CNBC says. Lastly, the bank is shorting the Mexican peso versus the Chilean peso. Chile, it says, is in an economic recovery aided by rising copper prices, and is likely to have a pro-business candidate win the presidency in November. Mexico, however, faces uncertainties regarding the renegotiation of NAFTA and its own upcoming presidential election.


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