FX COLUMN-Modest recovery may suit AUD, NZD or Scandinavia FX

— Jeremy Boulton is an FX market analyst for Reuters. The
opinions expressed are his own —

By Jeremy Boulton

LONDON, Aug 17 (BestGrowthStock) – Financial markets may be ready to
factor in a global economic scenario that essentially has as its
core theme recovery rather than recession, but the rebound is
likely to be marginal and patchy.

That means interest rates are likely to stay low, helping
carry-trade favourites such as commodities-linked currencies,
while Scandinavian units may provide shelter for those taking a
more negative view on the euro zone outlook.

Several international organisations have suggested that
recent economic growth has passed its peak, but they still put
little emphasis on any double dip.

The Fed now envisages a more modest pace of recovery
[ID:nN10160415], and the IMF sees continuing economic recovery
despite some slowing. [ID:nN27118569]

The OECD is more dovish, describing growth as having peaked
and saying its leading U.S. indicator has turned negative.
[ID:nPIS6JE62A] But the Fed, perhaps the most proactive of
central banks, isn’t standing idly by, moving last week to shore
up its balance sheet to support the economy.

That has pushed down U.S. bond yields and suggests we are
seeing a rush for safety, but it is notable that no such signals
are coming out of the Dow Jones industrial average (.DJI: ), which
is roughly in the middle of its range so far this year and in no
way indicates a rush for the exit.

All in all, for foreign exchange market (Read more about international currency trading. )s it looks like the
core balance to positioning will be much harder to shake off,
based as it is on ultra low rates staying for the long term.

This will leave the Aussie and Kiwi at the top of
performance tables as they remain the definitive carry trades on
offer, while for those more inclined to take a gamble,
Scandinavia may offer some shelter from any euro zone problems.

The Swedish and Norwegian economies look strong compared
with their euro zone peers, and are not burdened by the same
fiscal constraints. Initial tightening cycles are underway, and
Sweden is expected to end the year with rates at 1 percent,
while Norway’s rates are already at 2 percent with hikes priced
in further down the curve.

Canada is another firm favourite, underpinned by commodity
prices and the ever-present bids for Canadian companies — BHP’s
(BHP.AX: )(BLT.L: ) $39 billion bid for Potash Corp (POT.TO: ) the
latest headline grabber. [ID:nN22340110]

Oil revenues also underpin Canada as they do Norway.

With U.S. rates so low, the dollar looks a favourable play
to fund commodity currency longs, as there is greater liquidity
on offer and also the potential for more U.S. easing in the
pipeline, or at least the maintenance of already high stimulus.

For AUD/USD (AUD=: ) the 0.8850-0.8900 area offers good value
for buyers, with 0.8858 the extreme low reached after last
week’s FOMC, which looks to have injected a more risk-averse
spin into financial markets. For the same reason, NZD/USD (NZD=: )
shows value around 0.7000 and USD/CAD around 1.0500.
Alternately, the euro looks a good choice to fund Swedish
(EURSEK=: ) or Norwegian crown (EURNOK=: ) longs with the potential
for unsustainable sovereign debt levels and widening peripheral
bond market spreads to further undermine the single currency and
so bolster what is currently a marginal return.

Good value to sell strength in EUR/NOK is tied to the
200-day moving average at 8.0809, and it is worth noting that
only the briefest trade has been seen above 8.10 in nearly three

Stronger EUR/SEK resistance offering value for top-pickers
is seen around 9.6500-7000, which saw key highs going back to
early June.

FX COLUMN-Modest recovery may suit AUD, NZD or Scandinavia FX