How to hedge Trump trades in FX? - BofA Merrill

From Bank of America Merrill Lynch

What if Trump does what he has said on trade policies? The so-called Trump trades, and particularly the USD, have seen a correction this year, as President Trump"s rhetoric has shifted toward trade protection.

Our baseline assumes the US will avoid such policies, but we also see risks and markets could get more concerned in any case. This is consistent with a volatile but still upward USD trend. However, it is worth discussing the possible market reaction to potential US trade protection and how to hedge. This is just a first look, as a lot would depend on policy details and the potential reaction of the rest of the world. We recommend hedges that could do well even in our baseline scenario of no trade protection.

We consider three main scenarios of de-globalization: higher US trade protection; a global trade war; and a major repatriation of flows.

Our analysis suggests that JPY, USD, and NOK would benefit in most cases, particularly against AUD, CAD, MXN and KRW-USD/JPY would weaken.

To hedge Trump trades, we recommend long USD against AUD and CAD in G10 and against KRW in EM.

For bank trade ideas, check out eFX Plus.

How to hedge Trump trades in FX? - BofA Merrill
How to hedge Trump trades in FX? - BofA Merrill
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