Investors should buy the Norwegian and Swedish currencies against the euro, and Canada’s dollar versus its U.S. counterpart, as the tenders have been oversold relative to their fair value, according to Barclays Plc.
The three smaller Group-of-10 currencies have slumped against the euro and dollar so far this month after rallying in January and February. The drop has outpaced the currencies’ fundamental drivers, according to a Barclays fair-value model, which analyzes currency moves as a function of interest-rate differentials, commodity prices, equity-market performance and global equity prices.
“These rapid sell-offs often open up investment opportunities as they cause asset prices to deviate from their fundamental drivers,” Guillermo Felices, head of European currency strategy in London at Barclays Capital, wrote in a note to clients. “We favor selling euro-krone and euro-krona and dollar-Canada dollar on rallies.” Felices couldn’t be reached for comment.
The Canadian dollar, known as the loonie for the image of the aquatic bird on the C$1 coin, rose 0.1 percent to C$1.0012 per U.S. dollar at 11:06 a.m. in New York. It has fallen 1.1 percent against the dollar so far this week after gaining 3.1 percent in the first two months of the year. It should have depreciated about 0.5 percent this week, according to the Barclays model.
The krone, which has risen 0.5 percent to 7.4463 per euro today, has lost 0.6 percent this week, and the Swedish krona weakened 1.2 percent. The Scandinavian currencies should each have lost only 0.25 percent against the euro this week, according to the fair value model.
Australia, New Zealand
While the weakness in the Australian and New Zealand dollars has also outpaced that of the fair-value model, the antipodean currencies may have more to lose as futures-market investors sell long positions.
Net long positions, or bets the Aussie will rise, increased to 78,201 contracts in the week ended Feb. 28, the most since July, according to Commodity Futures Trading Commission data. Net long positions in the New Zealand dollar reached 24,211 in February, the highest since 2007.