Selling the US dollar against a basket of currencies from Malaysia, Singapore and Taiwan is the top trade for next year, as Asian central banks allow faster currency appreciation to offset price pressures, according to Goldman Sachs (GS).
The Asian currencies will also gain as it becomes costlier for the central banks to enter foreign exchange markets, said Jens Nordvig, a senior currency strategist in New York at Goldman Sachs, the world's most profitable securities company.
"We are bullish on the Asian currencies," Nordvig said in an interview on Wednesday. "The central banks need to allow faster gains for the currencies to curb inflation. With US interest rates going lower, it becomes costly for them to" sell local currencies and hold dollar assets.
The Malaysian, Singaporean and Taiwanese currencies will each gain about 5 percent to 10 percent against the dollar in the next year, according to Nordvig.
The Malaysian ringgit has gained 4.5 percent this year against the dollar, the Singapore dollar has risen 5.6 percent and the New Taiwan dollar advanced 0.9 percent over the same period.
The greenback dropped to its lowest level since 1971 this month against a basket of currencies as the US Federal Reserve's 0.75 percentage points in rate cuts since September prompted investors to seek higher returns elsewhere.
Singapore's inflation accelerated last month to 3.6 percent from a year earlier, the highest since 1991, a report showed last Friday. The consumer price index in Malaysia rose 1.9 percent from a year earlier, after gaining 1.8 percent in September, a separate report showed on Nov. 21.
Goldman also recommended that investors sell the pound against the yen next year as growth in the UK slows, pushing the Bank of England to cut its benchmark interest rate from 5.75 percent.
The bank also advised buying a basket of Brazil's real, Russia's ruble and the Czech koruna against a basket of the US dollar, the Canadian dollar and the pound.
Investors should also hold short positions for gold on expectations that current concerns about credit-market losses tied to US subprime-mortgages will subside, Goldman said. A short position is a bet that an asset price will decline in the future.
"Gold has been one of the main beneficiaries of the financial turmoil that erupted this past August," wrote Goldman analysts, led by Jim O'Neill in London, in a research note on Wednesday.
"We would now use a short exposure in gold, expressed in US dollars, to capitalize on a gradual relaxation of credit concerns in the financial sector over the coming months."
Gold rose to within 0.5 percent of a record US$850 an ounce on Nov. 7 as crude oil prices -- at their highest level ever -- spurred demand for the metal as a hedge against inflation. A weakening dollar also encouraged some investors to buy gold as an alternative investment.
Gold for immediate delivery last traded at US$806.79 an ounce from US$797.60 an ounce late on Wednesday.