(Bloomberg) -- The commodity-driven currencies of Australia, New Zealand and Canada are about to become victims of escalating global trade tensions, a former Tudor Investment Corp. trader said.
Brett Gillespie, who heads global macro investments at Ellerston Capital Ltd., said the currencies could fall 2 percent to 5 percent against the dollar in the next two to three months as higher tariffs may slow export growth and reduce demand for commodities. He added a wager against the Australian dollar last week, and also started betting against the offshore yuan earlier this month on the belief China may allow its currency to drop as much as 2 percent.
Gillespie spent more than 11 years at the hedge fund firm founded by Paul Tudor Jones before joining Sydney-based Ellerston in 2016 to start a global macro strategy. Ellerston manages about A$5 billion ($3.9 billion), according to its website, and has A$130 million in its global macro fund.
Global trade tensions ratcheted up earlier this month, triggering a sell-off in stock markets. President Donald Trump last week announced punitive tariffs on about $50 billion of Chinese imports and directed his Treasury Secretary to come up with new investment restrictions on Chinese companies. China then unveiled tariffs on $3 billion of U.S. imports, retaliating against earlier steel and aluminum duties ordered by Trump.
Gillespie sees elevated volatility across equity and other markets in the next six weeks as investors await more details of the new tariffs.
“We might be coming to a stage when emerging markets are going to underperform anyway. This is just going to add a little bit more to that story,” Gillespie said in a telephone interview. “So we’re thinking long dollar against the emerging markets and commodity currencies is a good way to be playing this.”
The Ellerston Global Macro Fund, managed by Gillespie and Robert Chiu, gained 2.9 percent since trading started in July. In December, the firm opened an institutional version of the fund with twice as much volatility, which has returned 6.9 percent through Feb. 14, Chiu said.
China is due for a round of tariff cuts and Premier Li Keqiang’s recent public speeches hinted at a willingness to resolve trade disputes through negotiations. Should trade tensions with the U.S. escalate significantly, China can allow its currency to slide a bit, while a steady sale of Treasuries can be used as a bargaining chip, Gillespie said. The offshore yuan has appreciated almost 12 percent since the end of 2016.
In recent months, Ellerston has taken a bullish bet on the yen, which Gillespie says can strengthen as much as 3 percent against the dollar. The Japanese currency tends to rally in tandem with Treasuries as risk appetite declines, Gillespie said.
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