Goldman Sachs: Leaning Into Commodity Exposure, Adding Rate Resilience

Goldman Sachs note that "on the whole, EM FX has been fairly resilient through the 'reflation tantrum' in core rates. This reflects the better global growth backdrop and commodity price strength on the one hand, and strong EM external balances on the other. However, even if the current sharp rate rise episode moderates, our forecasts for a surge in growth and sequentially higher inflation in Q2 means that we are likely to see renewed bouts of rate pressure in the spring and summer. Consequently we are refreshing our roughly vol-weighted EM FX basket by (i) adding RUB longs to MXN, ZAR and INR to lean further into commodity exposure and also to position for unwinding some of the risk premium build-up in the Ruble, and (ii) adding JPY on the short side in addition to USD, given its reliable responsiveness to U.S. rate increases. This is in addition to outstanding recommendations in CNY longs (via unhedged 3Y CGBs), short JPY/KRW, and relative value positions (long MYR vs short THB and long SGD vs short TWD)."