Goldman is out with its #1 trade idea for 2013.
They're advising clients to short the Aussie Dollar (AUD) against the Norwegian Kroner (NOK).
AUDNOK is currently at 5.8797. The firm's target is 5.00.
Why this trade?
We summarize in bullets:
- The Reserve Bank of Australia is expected to keep cutting rates. This will erode the Australian dollar's "carry" advantage (the appeal of higher rates). Lower rates will also reduce the appeal of Australian debt.
- The Australian dollar has somehow "defied gravity." staying very strong despite the fact that industrial metals prices have declined, causing a deteriorating Australian trade picture. What's kept the Australian dollar higher is the highest interest rates in major markets/AA rated countries.
- High rates have made it expensive to short the Aussie dollar.
- As for the Norwegian Kroner, Goldman expects Norway to grow more strongly in the coming year, and rate hikes are expected to come back. In fact, given the Norwegian housing bubble, Norway may be eager to see currency appreciation.
- The big risks to the trade: Huge foreign buying of Aussie foreign debt may prove resilient to RBA rate cuts, and Norway's exposure to Europe presents tail risk.
There you go. Goldman will be coming out with many more trade ideas in the coming days. We'll have them all here.
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