Credit Agricole CIB FX Strategy Research argues that the latest oil price drop may have some ‘unintended’ consequences in FX.
“Indeed, we note that the markets are already short CAD and neutral NOK while they are long AUD and NZD. Anecdotal evidence further suggests that FX clients are long the high-yielding currencies of EM oil exporters. Market positioning could thus make carry currencies rather vulnerable to a potential escalation of risk aversion on the back of a persistent drop in oil,” CACIB argues.
In terms of next week’s data, CACIB notes that next week’s inflation data out of the Eurozone and Japan should underpin the ECB and BoJ’s cautious outlook but it may not slow down the countdown to QE-taper.
“In all, USD, EUR and JPY could outperform G10 commodity and carry currencies, especially if market sentiment deteriorates from here….We stick with longs in USD/CAD* and AUD/NZD*,” CACIB advises.
Source: Credit Agricole CIB Research
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