In addition to the dollar, the AUD, CAD and NOK were the only currencies net bought on the week, says UBS. “Rather than a pure ‘risk on’ move, we believe there is some degree of structural allocation and rebalancing taking place”.
“Asset managers bought theses three currencies against the dollar, and this may reflect some underlying restocking of commodities taking place”, said the UBS analyst team. “Our commodity strategists believe that current valuations are attractive, and even though growth prospects are weak, there is enough life in data in the world’s major economies to believe that an outright recession can be avoided. For asset managers, rather than buying underlying commodities, investments in equity markets can offer similar exposure”.
“The NZD was on the other side of these flows however, again confirming the currency offers more limited risk: reward during ‘high-beta’ rallies”, they explained. “SEK was also net sold, as asset managers are taking a dimmer view on Swedish growth”.