Synopsis:

Goldman Sachs recommends a tactical trade position of short EUR/AUD. This stance is underpinned by expectations of continued US economic outperformance and limited rate relief in the next 3-6 months, alongside a growing narrative around a positive supply shock.

Key Points:

• Positive Supply Shock Narrative: There is an increasing discussion around a positive supply shock in the markets, influencing currency dynamics.
• Pro-cyclical G10 FX Opportunities: Pro-cyclical G10 currencies like AUD, NZD, and Scandinavian currencies are expected to have tactical upside. These currencies typically perform well in an environment pricing a “dovish policy shock.”
• Preference for EUR/AUD Short Position: Goldman Sachs views short EUR/AUD as the most attractive trade to capitalize on the current environment.
• EUR Funding Over USD: The preference for EUR funding over USD funding is influenced by the Euro's strong performance in recent times.

Conclusion:

Goldman Sachs advises a short position on EUR/AUD as a tactical trade. This recommendation is based on the anticipation of continued US economic strength, limited rate relief, and the market dynamics following a positive supply shock narrative. The bank also highlights the relative advantage of using EUR funding over USD in the current market scenario, further supporting the short EUR/AUD position.