Citifx analysts Kristjan Kasikov and Pierre Noual say that positive returns from government bonds were offset by sharp losses in equity portfolios during the month. Therefore index-based investors will reduce their FX hedge notionals to adjust for the reduced value of those portfolios.
"Our model estimates that unwinding the USD hedges will outweigh other flows'' Kasikov and Noual say.
As a result of the sharp overall losses in June, the signal is quite strong for all currencies and stronger for the Japanese Yen, the British Pound and the Norwegian Krone, as expected volume of hedge rebalancing flows is above historical norms, they say.