Goldman Sachs bets against the US dollar
Goldman Sachs started to open short positions on the dollar, as it is expected that the resumption of economic growth will lure investors out of the traditional shelter currency.
Goldman's strategists said that although earlier they argued that it was too early to expect "a steady decline of the dollar to the leading currencies, given the balance of cyclical risks," USD shorts against a number of other currencies are already beginning to look attractive.
Goldman Sachs referred to "a sustained quarantine process in many countries around the world, the fact that the Coronavirus pandemic has slowed down and a set of government stimulus measures such as progress with the EU Recovery Fund," a 750 billion euro ($834.1 billion) borrowing programme designed to help strengthen the European economy in the wake of the Coronavirus pandemic.
In particular, they stressed that the Norwegian currency is quite well positioned to strengthen during the rest of the coronavirus crisis and advised that the USD/NOK pair be shorted with a target price of 8.75 Norway currency per dollar and a stop order if the krone depreciates to US$10.25. Currently, Norway currency costs US$9.68.
A short sale of the currency includes borrowing the currency, selling it at the current market price and then waiting for the price to fall in order to buy the currency at a lower price and repay the loan. A short seller therefore makes a profit if the currency depreciates during this period.
"Demographics (Norway) and the national health system say the country is better prepared for an outbreak than many other states. Strong fiscal position gives it a clear advantage," - said analysts Goldman led by co-chairs of the international currency market Forex Zack Pandle and Kamaksha Trivedi, as stated in a Sunday note.
As of Monday morning, Norway reported 8,440 infections and 236 deaths from Covid-19, taking tough measures against the virus as early as March 12 and creating significant testing capacity.
In March, the country also announced a three-stage tax incentive plan and developed two state-supported loan and guarantee schemes to provide liquidity to Norwegian businesses.