Which currencies are out of line post Brexit? - Nomura

Bilal Hafeez, Global FX Strategist at Nomura, takes a look at the currencies potentially out of line following the Brexit outcome last Friday

Key Quotes

I don’t want to be premature in looking for currency crosses to move back into line, but I think it’s still worth looking at how currencies performed during the “Bremain” phase – 16 June to late 23 June when polls shifted in that direction – and the subsequent “Brexit” phase when the results started to come in.

It seems most currencies have moved proportionately in opposite directions across the two phases. A few currencies look out of whack, though.

JPY fell only 2.5% during the “Bremain” phase, but since last night it has rallied over 4%. That is more than other currencies have done. It could be that last week’s dovish Fed and inactive BOJ may have prevented more JPY weakness, but the jury is still out on that. At the other end, the pound appears to have weakened more than it had rallied during the “Bremain” phase. Given that the UK is at the centre of the storm, I’m reluctant to try to be too clever on this currency.

More interesting are NZD, AUD, MXN, TRY and ZAR, which appear not to have fallen by as much as they “should” have given their earlier rallies during the “Bremain” phase. On the flipside, SEK, PLN, NOK and HUF appear to have fallen too much. Therefore, picking currencies from the first group to sell against currencies in the second group may make some sense. This could mean selling crosses like AUD/SEK or TRY/HUF