Goldman Sachs analyzes effective FX hedges in scenarios where both US equities and yields decline, highlighting the most reliable currency positions. Safe-havens JPY and CHF, along with shorts in MXN and AUD, are identified as effective hedges. However, the costs associated with certain strategies prompt a preference for shorts in AUD or GBP due to their favorable combination of responsiveness and lower carry.
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Conclusion:
Goldman Sachs identifies JPY and CHF longs, along with MXN and AUD shorts, as effective FX hedges in declining equity and yield scenarios. However, due to the high cost of certain hedging strategies, shorts in AUD or GBP are recommended for their cost-effectiveness and strong responsiveness to economic downturns
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