Bloomberg
FX investors see metals as a way to get into Biden’s trillions
(Bloomberg) – As lawmakers argue over President Joe Biden’s latest trillion-dollar stimulus package, currency investors are already picking winners in the infrastructure spending boom the plan is likely to spark. They focus on countries that are the main sources of the copper, which is needed to strengthen the power grid, the iron ore for steel rebars, and nickel for battery-powered vehicles. For those who don’t normally invest in metals directly, forex is an excellent way to express these views. The expectation is that certain commodity-linked currencies will get an extra boost in addition to the support from the broader reflation trade that has dominated the markets for months. Given the president’s $ 2.25 trillion limit, Tom Nakamura of AGF Management says he is adding exposure to Canadian dollars while Jack McIntyre of Brandywine Global Investment Management gains confidence in his company’s holdings in currencies such as Canada and Chile. Peter Azzinaro of Manulife Investment Management, who already likes the loonie and the Australian dollar, says he’s also starting to look at the Chilean peso. Biden’s proposal still faces major challenges, and the Republicans countered with a much smaller offer. However, early estimates are already forming in currencies in which investors are looking beyond the potential growth burden of tax increases in the plan. Instead, they are focusing on the potential to strengthen economies in large parts of the commodity-producing world, with Europe and Asia also looking to improve infrastructure: “Investors are not only betting on global recreational trade, but also on a longer trading pipeline of infrastructure spending “, Said Amarjit Sahota, currency strategist and managing director of foreign exchange service provider Klarity FX. “They get tougher when they hold these positions and they don’t let go.” Of course, figuring out how far expectations of new infrastructure spending are driving markets is a challenge. Exchange rates depend on a dizzying, global array of inputs – including general risk sentiment, growth and interest rate differentials, and nowadays the relative success of vaccination campaigns. This is known as the “super cycle” of demand for certain commodities, which could span the next decade. Leveraging speculators have liquidated short futures positions on the Aussie since last year and have become less bearish on the Loonie. Meanwhile, investors were optimistic about the Chilean peso as copper prices rose, according to data from the country’s central bank. However, not all commodity currencies benefit: futures show that leveraged speculators continue to view the South African rand bearishly. There are other signs that metal-linked currencies are getting an extra boost lately. The Canadian and Australian dollars outperform many major currencies this year. The Chilean peso is now one of the emerging market currencies with the best performance against last year’s greenback of around two dozen. Asked by TimingAt AGF, which oversees $ 40.5 billion ($ 32 billion), Nakamura says it has been bolstered While exposure to Canadian dollars in recent months has overweighted the Aussie, it believes infrastructure spending is only Can be tailwind. “One of the difficult things about trying to express opportunities in the infrastructure plan through currencies is getting the timing right,” he said. “It can take a while to get through to sourcing, and it’s quite difficult to gauge when to expect the impact on these countries’ economies.” “But one of the draws of commodity currencies – whether or not they come from the G- 10 or large parts of the emerging economies complex – this infrastructure creates some level of support for these currencies and countries, ”he said. McIntyre has only become more committed to Brandywine, which manages around US $ 62 billion. His company’s holdings in currencies from energy and metal producing countries such as Canada and Chile as well as Brazil, Colombia, Indonesia, Norway, New Zealand and Russia and “tried not to fade them ”. Chile is the world’s largest producer of copper, not far from a nine-year high. Australia, another major copper producer, is also a major source of iron ore, the main constituent of steel. Canada now has both copper and iron ore – along with nickel. Steel Bounce: When Biden announced its infrastructure plan on March 31, US steel prices rose nearly 6%, with US producers viewed as one of the biggest beneficiaries of a deal that was closed. Even an infrastructure plan of just $ 600 billion, roughly as much as the Republicans offered Thursday, would translate into an additional 30 increase in U.S. metal spending by 2025, according to Chris Plummer, executive director of metals and mining consultancy Metal Strategies % lead Inc., which cited numbers from Dodge Data & Analytics. Azzinaro sees Canadian, Australian, Mexican and New Zealand currencies “cheap” at Manulife Investment, which had C $ 966 billion (US $ 773 billion) under management as of December. As a leading multi-sector global fixed income strategist, he said his team had positions Taken in the bonds of these countries and want to add more as it expects spreads to tighten o. His group uses currencies to maximize returns by either hedging or not hedging against the dollar. All of these countries benefit from infrastructure spending. “Infrastructure and global reflation are linked, and it’s a global story with a multi-year process that we’ve become much more positive,” said Azzinaro. “And right now the foreign exchange market connects all the dots.” (Updates Chilean Peso Size and Range in paragraph ninth.) For more articles like this, visit bloomberg.com. Sign up now to stay ahead of the curve with the most trusted company in News Source. © 2021 Bloomberg LP
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