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World Currency Observer
World Currency Observer

Exchange Rates: one year high and low

February 1, 2017. (see February 15 update below) Next update: March 1, 2017. Visit Search to look at past issues of World Currency Observer (brochure edition).

January 2017 was a month in which many currencies showed moments of weakness against the US dollar, only to see these weaknesses disappear over a couple of days (a roller-coaster effect). The net result on the month was that many currencies finished January level with, or at times even stronger, against the US dollar, than the beginning of the month. This analysis “fits” most Asian, African, European and Latin American currencies. Most movements in currencies throughout January against the US$ were generally viewed as reaction to statements from the United States linked with the coming to office on January 20 of new US President Trump, statements which often specifically impacted on individual countries – one example: Mexico.

Among the countries of the North American Free Trade Agreement (NAFTA), a particular topic for the Trump administration, the Canada dollar strengthened in January, while the Mexico peso weakened. These results perhaps mirror how both countries might fare if the US renegotiates NAFTA, but there were also news items in January of more immediate impact: the go-ahead for the Keystone pipeline in the United States (additional positive news for Canadian oil and gas exports to the United States) and for a “wall” along the Mexican border (to target Mexico illegal immigration into the United States). In the Americas, outside of the NAFTA countries, the Community of Latin American and Caribbean States (CELAC) completed summit meetings (in the Dominican Republic) in the middle of January. Among the CELAC countries, several major South American currencies, such as Brazil, continue to show strength against the US dollar, on the month and over the year.

The Euro rose by around 1.5% in August against the US$, with a similar increase by the United Kingdom pound. The Turkey lira fell by more than 7% on the month against the US dollar on the month representing even bigger declines against the Euro. The Turkey lira is down by more than 27% since this time last year against the US$. The Azerbaijan manat fell by around 6% in January against the US$, and is down nearly 20% since this time last year. The Japan yen moved up by around 1.5% against the US$. The China yuan also strengthened in January, but is still down nearly 5% since this time last year.

Looking at what may happen to currency values over the months to come in 2017, one theme is that the United States, which has long been the most stalwart advocate for freer foreign trade and investment around the world, looks set to reverse these positions. More evidence of this: confirmation that the US will pull out of the partially ratified Trans-Pacific Partnership trade deal, suggestions for US import taxes, moves to prevent specific US companies from moving jobs outside the United States, and confirmation that selective immigration controls will be put in place. Such moves can only lead to offsetting moves in other countries (which some might term to be retaliation)-to mention the particular focus of WCO, this can only complicate currency movements around the world. And added to all of this will be more contentious politics for the US dollar in the United States, with those who find themselves on the same side which views a strong-dollar as favourable (one such group of inadvertent strong dollar allies: those who say US interest rates should continue the rise begun in December 2016, due to the risk of inflation) having to engage in a US dollar dialogue with those who want to keep jobs and investment from flowing overseas, and who see a weaker US dollar as more desirable.

Adding to all of this, it is hard not to be struck by magnitude of commodity price changes over the past year, matching the movements of many exchange rates. Among commodity prices in January, the standout was raw rubber, up nearly 17% in January. Oil prices declined slightly, but are still in the US$55/barrel range, which is over 50% higher than they were a year ago. Metals prices are strongly higher than a year ago, to the extent that the nearly 7% movement since this time last year in gold prices looks rather small.

February 15, 2017 update

Suriname, a country of around half a million people on the northeastern coast of South America (it is one of the three Guiana countries which are located next to Brazil), was regularly singled out as the world’s worst performing currency in 2016, falling 70% against the US dollar (falling gold and oil prices, and the closure of an aluminum smelter, leading to a deep recession). The decline in the guilder mostly occurred in the first six months of 2016, taking the Suriname guilder to around 7 per US$ at the start of July 2016, from its start-of-2016 level of just over 4/US$. To update on this, the Suriname guilder is currently at around 7.5 per US$, assisted by more firmness in gold and oil prices, and also by suggestions that the IMF (which provided badly-needed funding in May 2016, and which is about to issue an assessment of Suriname economic policies) will “guide” Suriname to fiscal consolidation in the next couple of years.

World Currency Observer will next be updated on March 1, 2017. Visit Search to look at past issues of World Currency Observer (brochure edition).