The US dollar has performed very strongly during the past month and this is of course reflected across many different pairs in the FX market. Not all currencies have been weak to the same extent versus the greenback although nearly all posted significant losses.
European currencies lead the pack in terms of losses as the Swiss Franc, the Norwegian and Danish Krone and the euro lost more than 4%. Particularly the euro has been hurt by ECB promises of easier money and countries that trade mostly with the Eurozone such as Switzerland, Denmark and Norway have also seen severe losses. The Norwegian Krone has also had to deal with a dropping oil price, although the Canadian dollar, which is also exposed to oil prices, lost less than half.
The New Zealand dollar also posted serious losses of nearly 4%, which contrast with the unchanged reading of the Australian dollar. The Australian dollar was the only currency in fact out of the G10 which managed to stand its ground versus the US dollar during the past month. This was more or less related to the perception that the Reserve Bank of Australia may not cut rates further and positive global risk sentiment, which tends to boost demand for the (relatively) high-yielding aussie. China has also managed to avoid any big negative headlines. Commodities were falling, which should have hurt both the aussie and the kiwi but it looks like fast falling prices in dairy auctions were more detrimental for the kiwi.
The Japanese yen was the second ‘best’ performing currency with losses of nearly 1.5%. It looks like the Japanese yen did not drop more as doubts have started to emerge over the exact timing of the additional monetary stimulus by the Bank of Japan. It’s possible that the BoJ could have second thoughts over the extra stimulus and this is supportive – especially at a time where the euro offers much more promise for short-sellers due to the ECB’s promises of extra stimulus.
Finally for the UK pound, its losses are not excessive at -2%. On the one hand the Bank of England is far from any interest rate hikes but on the other hand the economic performance of the UK is much better than other countries. As the Bank of England is sounding mostly dovish, the pound could fall further.
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