FxWirePro: Trade radar on Scandinavian and Antipodeans

Exiting shorts in EURNOK at a small return in the Scandi trade radar due to the fear that softer regional growth dynamics could weigh on NOK given its high-beta status notwithstanding the backdrop of firmer oil prices.

At the same time, we maintained a softly bullish options position in NOK/SEK as this should be better insulated to shifting regional given that SEK has a higher beta than NOK to growth. The trade is now modestly in the money, albeit still requires careful monitoring, especially for ongoing commentary from the Riksbank on inflation and the pass-through from FX weakness.

The spike in Euro area inflation from1.2% to 1.9% in May should have little follow-through for the Swedish data; nevertheless, the perception that European inflation may be firming could encourage further.

The bulk of USD strengthening has come against EM currencies, but performance has outperformed most currencies in G10 as well. Regional divergences in G10 reflect EM biases with Asia-linked and defensive currencies (AUD, CHF, and NZD) outperforming vs. USD in the past month, but Euro area-linked currencies (EUR and SEK) weakening the most.

While the smoke has cleared for the Aussie from yesterday’s FOMC outcome, 0.7600 should cap the AUD.

While in the medium term perspective, 3 cent fall in Apr-May brought AUDUSD back to well within short-term fair value ranges. Yield differentials along the curve continue to move steadily in the US dollar’s favor, but Australia's commodity basket has recovered some of March's steep losses, with demand for industrials resilient. Courtesy: JPM

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