Complacent commodity bloc currencies positioning vulnerable - BNPP

Research Team at BNP Paribas, suggests that their FX Positioning Analysis highlights that FX investors do not hold sizeable bearish commodity bloc exposure.

Key Quotes

“The market holds very light short CAD, NZD and NOK positions with scores of -9, -5 and -9 respectively (on a scale of +/- 50), with AUD positioning a small net long of +6.  We view such light positioning as complacent and see a risk that FX investors begin to build bearish positions in the commodity bloc.

We note the following 3 points in support of further commodity bloc downside: (1) WTI traded to new lows at USD 43/bbl Monday and our Commodity Strategy team expect the decline to extend further, forecasting USD 40/bbl by end q3. (2) With US nominal front-end yields pushing higher as the market increases pricing for Fed tightening, while at the same time oil is declining, US real yields are rising to the highest level since March. (3) Domestic data could highlight that commodity bloc central bank easing is underpriced: we think Australia’s Q2 CPI data will surprise to the downside, paving the way for a 25bp rate cut at the 2 August meeting.

The market already prices two full RBNZ rate cuts and this might struggle to increase, but with no easing priced in Canada, there’s plenty of room for expectations to turn more dovish on the BoC. We expect the Norges Bank to cut in September and remain short NOKSEK.”