Goldman Sachs starts shorting the dollar as economic reopenings boost foreign currencies

• Some nations' strong fiscal positions and smooth reopenings are creating attractive opportunities to short the dollar, Goldman Sachs said in a Sunday note.
• The firm highlighted the Norwegian krone as the currency of choice for betting against the dollar.
• The nation's healthcare system, demographics, and ability to shore up cash from foreign investments set it up for a swift rebound and strengthening currency, the bank's strategists said.
• Goldman recommended shorting the USD/NOK pair at 8.75 krone per dollar, with a stop at 10.25 krone per dollar.
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Economic reopenings outside the US are lifting foreign currencies and creating a strong opportunity for some bets against the dollar, Goldman Sachs strategists said in a Sunday note.

Cash assets served as an initial safe haven for investors as the coronavirus spread throughout the US in March and fueled new recession fears. With economic reopenings taking effect around the world and new stimulus measures further lifting sentiments, the firm highlighted the Norwegian krone as best suited for a bet against the dollar.

"We have maintained for some time that it was too early to look for outright and sustained dollar downside given the balance of cyclical risks," the team led by Zach Pandl wrote. Yet "the steady reopening process, limited evidence of a pickup in COVID infection rates" and new relief policy like the EU Recovery Fund make Norway appear "well-positioned to outperform through the coronavirus shock," they added.

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Short-selling involves borrowing an asset, selling it at market price, and buying it back at a lower price to profit the difference. Shorting the dollar can be done through a range of currency crosses.

Norway's demographics and healthcare system helped it combat the pandemic better than many other countries, Goldman said. The country has also been able to avoid outsized borrowing or policy limits by taking in cash from foreign investments. The fiscal position sets it up for a minimal currency hit through the health crisis. Goldman recommended shorting the USD/NOK pair at 8.75 krone per dollar, with a stop at 10.25 krone per dollar.

Norway's endurance through the economic downturn drastically differs from the US's position. The Treasury Department announced May 4 it plans to borrow $3 trillion in the second quarter to cover stimulus costs, more than double the total sum borrowed through the entirety of 2019.

Experts also fear the US could face a second wave of coronavirus infections from premature reopenings. Immense borrowing and continued economic stress stand to drag further on the dollar's relative value.

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