Currencies | Sep 08 2009
By Andrew Nelson
The latest round of IMM data covering the week from 25 August to 1 September shows that speculative investors reduced their exposure to pro-cyclical currencies as risk appetite faded and risky assets came under pressure. But it’s important to note that the data were collected on 1 September, which was one of the worst days on global equity markets in the last few months.
The FX research team at Danske Markets reports that over the course of the last week of August, net long euro positions were roughly halved, while overall short USD positions declined marginally. Net longs in AUD, NZD and CAD were also scaled back, but not nearly to the same levels, slipping only between 3% and 5%.
This tells the team at Danske that the pull-back in risky assets didn’t really affect the bullish view on the commodity currencies to any significant degree.
Japanese yen positioning also reflected this renewed risk sentiment, says Danske, with speculative investors adding to their net yen long positions. This saw the USD/JPY briefly slip below 92 last week, but Danske notes the yen has since come under pressure as risk appetite has picked right back up across financial markets once again.
This perception of quickly rebounding risk appetite goes hand in hand with Danske’s view that market sentiment has improved since the beginning of the month. And this fact, thinks Danske, will likely see a reversal in the changes in positioning as reported in this latest IMM report.
This belief would also help to explain some of the recent appreciation in the AUD, CAD, GBP and NZD.
And it’s this quick bounce back from the end of August’s slight turning away from perceived risk that has Danske thinking that last week’s shaky equity markets have done little to harm the pro-cyclical currencies.
As such, Danske doesn’t expect a real pull-back in pro-cyclical positioning, in fact saying the NZD is the most valuable currency of those discussed given the relative scale of long positions.
