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By Bloomberg

The top currency forecaster’s best advice is to stay away from trading the euro against the dollar.

The most popular trade in the $5.3 trillion-a-day market is too risky given the turmoil in Greece and uncertainty about the timing of an interest-rate increase from the U.S. Federal Reserve, according to Credit Suisse Group AG. The Zurich-based bank led Bloomberg’s second-quarter foreign-exchange rankings and instead recommends betting against Canada’s dollar, which is being weighed down by oil-price declines, and buying the pound against the currencies of Australia or New Zealand.

Strategists’ assumptions that euro-dollar would be driven by a clear divergence in monetary policies have been derailed by signs of economic improvement in Europe, at the same time that mixed data in the U.S. pushed out expectations for a rate hike. Even as the crisis in Greece escalated -- resulting in Sunday’s referendum rejecting a bailout plan -- the euro has been surprisingly resilient, gaining versus the dollar in June.

“There are frankly too many moving parts, too many cross currents,” said Shahab Jalinoos, Credit Suisse’s New York-based global head of foreign-exchange strategy. “You have a combination of uncertain policy outcome in the U.S., an improvement in euro-area indicators that some feel may be only temporary, and you also have political risks in Greece.”

‘No’ Vote

The euro slid on Monday after the Greek referendum showed 61 percent of voters rejected a bailout plan, raising the risk of an exit from the currency union that would call into question the integrity of the bloc.

Many forecasters are opting to sit out the turmoil, with the median year-end estimate in Bloomberg’s euro survey remaining unchanged at $1.05 since the end of May.

“The result encourages us to keep our current $1.05 forecast in three months intact,” said Jalinoos, whose firm topped Bloomberg’s overall rankings for currency forecasts in the four quarters ending June 30, rising from second place in the previous survey. “We do expect significant volatility to persist.”

More Bearish

Credit Suisse is more pessimistic on the euro than most, predicting a decline to $1.03 by December. Europe’s single currency fell 0.3 percent to $1.1086 as of 9:11 a.m. London time on Monday, after touching a one-week low of $1.0970.

The most-accurate forecaster for euro-dollar, DNB ASA, said last week it’s waiting for the repercussions of the Greek referendum to play out before it revises its estimates.

“We’re in wait-and-see mode,” said Camilla Viland, a currency strategist at DNB in Oslo. “We think this is more short-term and we’ll hopefully be able to put the Greece situation behind us and focus more on fundamentals.”

The Norwegian financial-services group estimates the Fed will raise interest rates from close to zero in September. With the European Central Bank pumping unprecedented amounts of cash into the economy, that should push the euro down to $1.06 by year-end, it predicts.

Biggest Trade

Trading the euro against the dollar accounts for 24 percent of all currency deals, making it the most popular transaction in the world’s largest financial market, according to the Bank for International Settlements.

The best forecasters in Bloomberg’s rankings were identified by averaging individual scores on margin of error, timing and directional accuracy across 13 currency pairs during the past four quarters.

Banks had to be ranked in at least eight of the pairs to qualify for the overall placing, with 59 making the cut. Credit Suisse’s score of 60.8 compares with second-placed Toronto- Dominion Bank’s 59.05 and third-ranked Saxo Bank A/S’s score of 58.84.

Toronto-Dominion recommends bearish bets on commodity currencies as demand for raw materials wanes. The Canadian bank predicts the local dollar will decline to C$1.28 to the greenback by Dec. 31, but says it could slide toward C$1.30 if interest-rate cuts become more likely, said Prashant Newnaha, a rates strategist in Singapore.

The Aussie dollar dropped to a six-year low of 74.52 U.S. cents on Monday while New Zealand’s currency slid to levels unseen since 2010.

Credit Suisse has more conviction on weakening commodity currencies, too. The Swiss lender sees Canada’s currency, known as the loonie, depreciating to C$1.29 per U.S. dollar this year, from about C$1.26.

Buying the pound and selling the New Zealand dollar is a popular trade amid speculation the Bank of England will raise interest rates in the next year and as falling dairy prices hurt the South Pacific nation, according to Credit Suisse.

“We’re looking at a trend higher in sterling against kiwi, just based on a much cleaner monetary policy story which has nothing to do with Europe per se,” Jalinoos said.