Deutsche, JPMorgan Favor Energy-Linked Currencies Amid Iran War

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(Bloomberg) — Investors are doubling down on bets that energy-linked currencies will keep rising as the US-Iran conflict reshapes global oil markets, with Deutsche Bank, JPMorgan Chase & Co. and Pioneer Investments urging clients to buy into the trade.

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Strategists from JPMorgan and Deutsche recommend the Norwegian krone and Australian dollar, which got a boost Monday after Brent futures rose above $108 a barrel, as efforts to resume peace talks stalled. The currencies are becoming more attractive as proceeds from energy sales boost the economies and allow for tighter monetary policy — markets are penciling in interest-rate hikes this year in both countries.

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The krone and Aussie have gained about 2.5% and 1%, respectively, since the conflict began, making them the best performers in the Group of 10. JPMorgan also favors long krone positions against the Swiss franc and Japanese yen.

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At Pioneer, strategist Paresh Upadhyaya is targeting higher-yielding currencies in energy-rich economies, including Kazakhstan, Brazil and Nigeria, against a basket of comprising the euro and dollar.

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“We want to be in high-yielding places that are energy sufficient,” Upadhyaya said.

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The recommendations show how traders are adjusting to a broader shift in currency markets: As oil prices surge and supply risks rise, investors are favoring exporters that benefit from stronger terms of trade, while avoiding importers exposed to rising energy costs.

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“The most compelling opportunities lie within commodity-linked currencies,” said Federico Cesarini of Amundi Investment Institute. He said the Australian and Canadian dollars, Norwegian krone and Swedish krona are “deeply undervalued.”

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Upadhyaya said he is cautious with currencies from Asian energy importers, which have come under pressure as oil prices have climbed as tensions around the Strait of Hormuz persist.

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The euro has fallen about 0.5% since the conflict began, underscoring Europe’s reliance on imported energy. The Indonesian rupiah lost 2.5% while the Indian rupee declined 3.4% against the dollar over the period.

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On the flip side, in Kazakhstan — which exports oil and gas — the tenge has been the top performer, rising some 10%.

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Hedge funds, meanwhile, have also added to bullish bets on that currency, according to Commodity Futures Trading Commission data through the week of April 21, while expectations for further rate hikes in commodity-exporting economy are adding support. 

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