[Calxy]

When choosing currencies to buy against the Dollar, continue to focus on strong cyclical stories, in particular those where either the consensus will likely have to revise up its cyclical assessment or where growth is already strong but the central bank still blocks nominal appreciation. Sterling probably ticks both boxes.

Australia also is a growth story with upside potential. For example, market continues to expect a rate hike in December. However, the strength of the Australian economy is well flagged. This means that the AUD recommendation probably relies to a larger extent on risky asset correlations than other trades, which will potentially enjoy stronger tail winds from cyclical surprises.

The strong Dollar-risk correlations appear to remain in place for now and the extremely large divergence of cyclical growth across countries suggest growth differentiation strategies will likely continue to work for much of next year, and maybe longer. Much of the focus will therefore be on trying to identify the cyclical outperformers as early as possible.