OPEC meet: FX market implications - Nomura
In the G10 space, given the terms-of-trade implications, a pull-back in oil prices could put near-term depreciation pressure on NOK and CAD, suggests the research team at Nomura.
“Typically, when oil prices are declining, CHF, EUR, JPY and USD tend to perform. EUR correlations to oil have been turning significantly more negative in recent months. In our view, it would be prudent for investors to limit long-oil exposures in the oil-sensitive currencies around the OPEC meeting, given the risks of a short-term setback.”
“Nonetheless, we would expect NOK and CAD sensitivity to be more limited than usual to an oil price decline this time around. De-coupled, CAD and NOK are currently trading well below where the level of oil prices would suggest. Over the medium term, this kind of divergence is typically not sustainable. Even if oil prices were to suffer on the back of an OPEC disappointment, the impact on NOK and CAD may be relatively contained. From a terms-of-trade perspective both currencies seem already undervalued, which may limit depreciation pressures.”
“In addition, we do not think an OPEC disappointment would be a medium-term gamechanger for oil prices, and higher ranges are sustainable in our view. From a fundamental perspective, we think long NOK and long CAD positions remain attractive. We remain short EUR/NOK via a put spread, and believe that Scandie housing market fears (particularly in Norway) are over-done. On CAD, much negativity is already in the price and the BoC is likely to resume hiking in 2018, in our opinion.”