Strategists at JPMorgan and Deutsche Bank write that the Norwegian krone and Australian dollar are becoming more attractive as energy revenues strengthen the Norwegian and Australian economies. That allows them to pursue tighter monetary policy, and markets are already plotting interest rate hikes this year in both countries.
Since the start of the Gulf War, the Norwegian krona and Australian dollar have appreciated against the U.S. dollar by about 2.5% and 1%, respectively, the best performance among the G-10 currencies.
At the same time, the tenge, the currency of Kazakhstan, which is an oil and gas exporter, was the top gainer in the EM segment, strengthening by about 10% since the start of the Iranian war.
JPMorgan also favors long positions in the Norwegian krone against the Swiss franc and Japanese yen. At Pioneer Investments, strategist Paresh Upadhyaya is betting on high-yielding currencies of energy-rich countries (including Kazakhstan, Brazil and Nigeria) against a basket consisting of the euro and the dollar, Bloomberg reports.
“We want to invest in high-yielding economies that are backed by energy resources,” the expert notes.
The currency market is adapting
These recommendations show how traders are adapting to changes in the currency market. Rising oil prices and increased risks of supply disruptions encourage investors to favor exporting countries that benefit from improved terms of trade and avoid importing countries vulnerable to rising energy costs.
“The most attractive opportunities lie among commodity-linked currencies,” said Federico Cesarini of Amundi Investment Institute.
The Australian and Canadian dollars, as well as the Norwegian and Swedish krona, are “significantly undervalued”, he said.
At the same time, investors are cautious about the currencies of Asian countries, which have come under pressure as oil prices rise due to the ongoing tensions around the Strait of Hormuz.
