24 Mar 2015
Domestic investors keep buying DKK – JP Morgan
FXStreet (Edinburgh) - Domestic players remain the principal buyers of the Danish krone, noted analysts at JP Morgan.
Key Quotes
“According to the Danish central bank two-thirds of net buying of DKK during January and February came from domestic investors and corporate looking to hedge their FX exposure”.
“This confirms our view that the risk to the peg comes primarily from domestics hedging rather than foreign speculative inflows”.
“The key question now is how much of their FX exposure domestics have hedged and the extent of their outstanding exposure?”.
“As a guide consider that Denmark’s gross foreign assets amount to DKK 5600bn (265% of GDP). Roughly one-third of this is denominated in euros”.
“Net private sector buying of DKK during January-February can be proxied by the size of the central bank’s intervention, so DKK 275bn”.
“Domestics accounted for say DKK 185bn of this, meaning that domestics will have hedged roughly 3% of their total FX exposure during the last two months”.
“This is not trivial, but neither does it mean that all-in hedge ratios are necessarily that high. In other words, the potential for domestic players to keep buying DKK to hedge their FX exposure remains relatively high”.
Key Quotes
“According to the Danish central bank two-thirds of net buying of DKK during January and February came from domestic investors and corporate looking to hedge their FX exposure”.
“This confirms our view that the risk to the peg comes primarily from domestics hedging rather than foreign speculative inflows”.
“The key question now is how much of their FX exposure domestics have hedged and the extent of their outstanding exposure?”.
“As a guide consider that Denmark’s gross foreign assets amount to DKK 5600bn (265% of GDP). Roughly one-third of this is denominated in euros”.
“Net private sector buying of DKK during January-February can be proxied by the size of the central bank’s intervention, so DKK 275bn”.
“Domestics accounted for say DKK 185bn of this, meaning that domestics will have hedged roughly 3% of their total FX exposure during the last two months”.
“This is not trivial, but neither does it mean that all-in hedge ratios are necessarily that high. In other words, the potential for domestic players to keep buying DKK to hedge their FX exposure remains relatively high”.