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FXstreet.com (Barcelona) - Nick Bennenbroek, Head of FX Strategy at Wells Fargo believes that dollar block and NAFTA currencies, AUD, NZD, CAD and MXN are at risk from the looming fiscal cliff.

He comments that these currencies have shown a reasonable level of sensitivity to global equity moves over the past year. The betas for AUD, NZD and MXN are all above 0.60, though the sensitivity of CAD is a little lower at 0.45.

He also believes that it is worth noting that this group of currencies is entering the post US election period with sizeable long positions which also hints at prospective future downside. Looking at NZD and MXN he notes that IMM currency futures show speculative long positions that are at 84% and 82% of their respective 2012 peaks. The same reports shows AUD and CAD at 74% and 66% respectively.

Looking at economic and interest rate factors perhaps offers slight protecting in limiting the extent of potential FX downside for these currencies. For CAD and MXN, he notes that the outlook is for unchanged to higher rates while rate futures indicate only a modest decline in the NZ benchmark interest rate.

Bennenbroek highlights that while markets are currently pricing around a further 60bp of rate cuts from Australia, economic data there has been firmer on balance and the Chinese economy looks to have strengthened, perhaps providing a partial offset. He finishes by commenting that "On the basis of recent FX sensitivity to equity moves and current FX positioning, we suspect that this group of currencies all face moderate to elevated downside risk should U.S. developments cause global financial markets to come under significant pressure."

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