How long can SEK defy Sweden’s economic outperformance? – RBC CM

Adam Cole, Research Analyst at RBC Capital Markets, suggests that there is no better fundamental growth story in G10 than Sweden but with the exception of GBP, SEK is the year’s worst performer in G10.

Key Quotes

“So what went wrong and what might bring SEK more into line with its fundamentals? We think the role that outright yield is playing and the return of the G10 FX carry trade is behind SEK underperformance.

Our analysis shows SEK to be the optimal funding currency in G10 carry trades. Several factors could change this, or stop the carry trade more generally, though none looks like a particularly imminent risk.

We suggest using low vol to position for an eventual unwind of the “SEK carry trade”, while reducing sensitivity to an ongoing grind lower in the interim.”