David And Goliath – The Big Smalls in FX

Lingo aplenty for us poor people at home. We have EM, DM, G3, G10, the Bigs and the Smalls.

The “smalls” are a basket most connote with the Aussie dollar, Canadian Dollar, South African Rand, Norwegian Kroner, Swedish Kroner, New Zealand Dollar,  Singapore Dollar, Taiwanese Dollar, Colombian Peso, Indian Rupee, Indonesian Rupiah, Russian Ruble, Turkish Lira, Argentine Peso, Brazilian Real, Mexican Peso, Chinese Yuan, and the Malaysian Ringgit.

These were the angels of QE that have outperformed the basket of the “bigs” – The Dollar, the British Pound, the Euro, and the Jap yen in yester years.

It is all in the past because the “smalls” have been clobbered in 2013 and continue to look pathetically vulnerable in this new year.

The bigger “smalls” that I have been following, namely, the CAD, AUD, Nzd, NOK and TRY, have underperformed the little ones, except for the Nzd, of late.

Since 4Q13 till pre US Non Farm Payrolls, we have seen the CAD depreciate 4.6%, AUD down 5.3%, Nzd down 0.15%, NOK lose 3.34% and TRY fall 8%.

These are substantial losses for medium weights in most portfolios, having gained favour in recent years. In particular, the CAD and AUD which have caught the eyes of central bank and global reserves.

Every outlook out there available for the retail buyer is the same, echoing AUD at 0.83 to 0.85 to the USD and CAD at 1.10-1.11. As I write, I receive another one from my banker egging me to buy USDJPY at 103.60.

Perhaps so and perhaps the USD will continue on its relentless path of strength. But the USD is not my base currency. My base happens to be the Singapore dollar and my concern lies therewith.

Economists will pull out their deficit charts, forward implied curves for interest rate expectations, GDP projections and all, but the fundamental point is that the reason why the big “smalls” are floundering is because they are representing the “smalls” world and that they are liquid enough for a portfolio to proxy when hedging for the USD strength. How much MYR and THB can one sell  compared to AUD and CAD ?

Turkey has a different story for her weakness but there is a reason why I like Turkey over Thailand. And that is Geography but I have said that before a few months back, way too early.


I like the big “smalls” against the other “smalls”. I embraced 2014 with little reason to like Asia and I have not changed my mind. It was too much of a good thing, too fast and too furious (God bless Paul Walker). The 2 biggest of the “smalls” – the AUD and CAD will be worthy of note, against the SGD, with my buy target levels in place. AUD, a little more shaky given its correlation with all things China, which makes it the best proxy hedge for Chinese growth.


AUDSGD target 1.16 and CADSGD 1.185.

For the cautious, a 1 month dual currency deposit with CADSGD (you receive CAD) at 1.14 will net you just about 1.1% and strike 1.15 is going at 3.3%. The current CADSGD spot is at 1.1608.

The AUDSGD 1 month dual currency deposit at strike 1.12 should give 2.3% and a more aggressive strike at 1.13 is at close to 4.8%. The current AUDSGD spot is at 1.1421.

Yet we are small in a “bigs” world and small against the big “smalls” – David vs Goliath and may the smarter win.

PS: Please note that I have amended the rates of the dual currency deposits. Accidentally used the 3mths rate instead.