BNY’s Geoff Yu highlights that IMM volume is concentrated in commodity currencies, with AUD, NZD and NOK leading recent adjustments. NOK and CAD are seeing outflows linked to Oil sensitivity and modest Norges Bank tightening expectations, while NZD and AUD have underperformed since May. BNY sees scope for non‑energy commodity currencies to outperform, but prefers relative-value trades while Dollar strength endures.

Commodity currencies lead IMM positioning

"Measured by combined net flow scores and volumes, the largest adjustments occurred in commodity-linked currencies. AUD, NZD and NOK were the most actively traded currencies, while NOK, CAD, NZD and AUD all ranked among the top five G10 currencies by flow magnitude. Combined with recent spot performance, the flows point to clear valuation themes emerging around the outlook for energy and commodities."

"Outflows from NOK and CAD are unsurprising. Both currencies are highly exposed to oil prices, and the prospect of a durable ceasefire argues for some derating. NOK is particularly vulnerable as the most overheld G10currency, while expectations for further Norges Bank tightening remain modest."

"By contrast, NZD and AUD have underperformed since early May. Rising input costs have weakened the case for improved terms of trade, while soft Chinese growth has provided little support. Changes in U.S. rate expectations relative to the antipodeans have historically had a large impact on valuations, but IMM positioning suggests much of that adjustment has already occurred."

"We are sympathetic to the view that non-energy commodity currencies could outperform in the near term, but current risk-reward favors relative-value positions while USD dominance persists."

"For example, EUR has moved back into overheld territory on an aggregate basis, as strong net inflows were amplified by a high-volume session. Dollar net flows were broadly neutral, suggesting the currency was used equally as a funding and carry vehicle, which is consistent with current market conditions."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)