In an report titled Pregnant Pause, Pimco said the RBA’s decision to hold interest rates is a “temporary pause” in a protracted easing cycle.
“Given this outlook and market pricing, we think the best expressions of this macro view are via a short position in the Australian dollar rather than aggressive duration positioning, and taking advantage of wider cross-currency spreads to add some global credit exposure to portfolios hedged back to the Australian dollar,” the report said.
“Our preferred way of expressing the downside macro risks in Australia is via a short position in the Australian dollar versus the US dollar,” the report said.
“The Australian dollar versus the US dollar should also be advantageous when the US Federal Reserve exits its zero interest rate policy, expected in 2015.
“We also think that adding the euro and US dollar-denominated corporate bonds to Australian portfolios on a fully hedged currency basis is an attractive way to add credit exposure in the current environment.
“A reasonably constructive global growth backdrop should continue to support credit markets, and the recent widening in cross-currency swap basis spreads gives portfolios the potential to lock in additional yield,” the report said.
Pimco also pointed out that further rate cuts will be protracted in nature rather than pre-emptive and “aggressive”.
“This is because the evidence suggests that growth is in fact rebalancing, but not yet at a pace quick enough to maintain stable employment and prices,” Pimco said.
