The next FX opportunity may depend less on who hikes and more on who can afford to keep going.
A currency can pay you more and still be the wrong trade. The danger comes when tarders focus on the income from higher rates and underestimate what those rates are doing to the economy underneath. A yield advantage looks reassuring while growth holds up. It becomes less reassuring when maintaining it starts to weaken the economy supporting the currency.
Australia’s latest NAB business survey captures that issue, where conditions have turned negative while cost pressures remain elevated. That is neither the clean disinflation the central bank wants nor evidence of an economy comfortably absorbing further tightening. It leaves investors facing an awkward possibility inflation keeps policy tight today, while weaker activity undermines tomorrow’s yield support.
The question is not simply who hikes next. It is which currency depends on a policy path its economy may struggle to sustain and where the other side of that trade has a more credible reason to keep tightening.
Trade thesis write-up, a walk through the macro layers to a trade thesis and execution. All charts are taken from www.globalmacromethod.com where all paid members can access.
