Headline for .     The US dollar has been generally stronger since reaching a low at the end of January 2018, with an even stronger upward movement since the beginning of April 2018.     WORLD CURRENCY OBSERVER thanks readers for comments. In any language, on any topic, send them to renaissance@briargreen.com.    
World Currency Observer
World Currency Observer

Exchange Rates: one year high and low
Commodities: one year high and low

July 4, 2018 (see July 18 update below). Next update: August 1, 2018. Visit Search to look at past issues of World Currency Observer (brochure edition).

June was a month of general weakness in currencies around the world against the US$ The Canada dollar and the Mexico peso both experienced sharp downward movements against the US$ in the middle of June (nervousness in the trade relationship with the US), which were then reversed in the last two weeks of June, leaving the Canada dollar down 1.5% on the month, and the Mexico peso up by nearly 1.5% against the US$ (although the Mexico peso is down over 9% against the US$ since this time last year). The Jamaica dollar is down 3% against the US$ since this time last year, because of a 2% decline in June. The Haiti gourde also fell by 2% in June, and has fallen by 7.6% against the US$ since this time last year. South America currencies generally showed weakness against the US$ in June - the exceptions were the Paraguay guarani (up nearly 1%) and the Peru sol (up a little). Besides the 11.5% fall in the Argentina peso, the Brazil peso fell by 3.6% (down 17% since this time last year). The Chile peso fell by nearly 3% in June, but is still 2.4% stronger against the US$ than this time last year. The Euro was down slightly against the US$ over the month of June, leaving it nearly 2.5% stronger than this time last year. The Sweden krona fell by 1.5% against the US$ in June, while the Swiss franc and the United Kingdom pound both fell by just under 1% against the US$ in June. The Hungary forint fell by 3.2% against the US$ (and against the Euro) in June, leaving it 4.3% weaker than one year ago. The Turkey lira is now down 30% against the US$ since this time last year, after falling nearly 2% in June against both the Euro and the US$. The Kazakhstan tenge fell by 3.6% in June against the US$, and the Tajikistan somoni fell by 1.7%. The Russia rouble fell by nearly 1% against the US$ in June, and is down nearly 6% against the US$ since this time last year. The Belarus rouble rose by nearly 1% against the US$ in June. The Syria pound is up by nearly 16% since this time last year against the US$, while the Iran riyal is down by over 16% since this time last year. The Israel shekel fell by just over 2% against the US$ in June, leaving it down by 4% since this time last year. An 8% fall in the South Africa rand in June left the rand 5% nearly weaker than the US$ since this time last year. The Uganda shilling fell by 3% against the US$ in June. The Mozambique metical rose by over 1% against the US$ in June, and the Mauritius rupee went up by nearly 1.5% against the US$ in June. The Liberia dollar fell by a further 8% in June against the US$ (after a 4.8% drop in May), and is now down by 31% against the US$ since this time last year. The Tunisia dinar fell by 2.5% in June, as did the Ghana cedi. The Sierra Leone cedi fell by nearly 1.5% in June against the US$. Asian currencies were generally weaker against the US$ in June, but with widely mixed movements against the US$ since this time last year. One of the sharpest downward movements in June was the 3.2% decline in the China yuan, but this still left the yuan nearly 2.5% stronger against the US$ than this time last year - other examples of similar mixed movements were the Japan yen, the South Korea won, the Malaysia ringitt and the Thailand baht. The Pakistan rupee is down by over 16% against the US$ since this time last year after a 5% decline in June. The India rupee fell by 1.5% in June, and is down by 6% against the US$ since this time last year. The Bangladesh taka moved up against the US$ in June. Worldwide oil prices were up by around 8% in June, and are now 60% higher than a year ago (there have been reports of a Saudi Arabia-Russia agreement on oil production levels). North America softwood lumber prices showed some weakness in June after 1 1/2 years of steady increases. Worldwide coal prices are up nearly 16% since this time last year. Coconut oil prices are said to be under downward pressure due to reports of growing reassessments of their health and nutritional benefits (down 46% since this time last year). The agricultural commodities which are most part of the trade war - particularly soybeans and wheat - saw price falls in June. Gold prices in US$ terms fell by nearly 3.5% in June, and are up nearly 1% since this time last year. Aluminum prices fell by nearly 4% on the month. but are still up more than 14% since this time last year (copper prices showed a similar movement).

In Europe, France and Germany issued a common Eurozone declaration on June 20. (France and Germany are the largest members of the EU-in 3rd place is Italy) The major comment on the Euro in the declaration was that “to ensure a strong economy, the European Union needs a strong currency union. This currency is the Euro, which is open to all Member States and which nearly all Member States intend to adopt in accordance with the EU treaties. Sharing the same currency entails specific needs in terms of economic coordination and integration. As a consequence, France and Germany have decided to propose key steps in the following road map to strengthen and deepen the Euro area further, and make it a genuine economic union.” The key proposals include creating a budget for the Eurozone, creation of a European border police service (viewed as a measure to deal with migration issues, particularly on the southern borders), and to support and accelerate the European project to harmonise the corporate tax base in Europe. The declaration calls for more work on the European Stability Mechanism (the front line for dealing with member states in financial problems), and, on the banking side, establishing a link between the ESM and Single Resolution Mechanism (which deals with cross-border banks which get into financial problems) – there has been some concern expressed, particularly in Germany, with regard to the financial costs of any enhancement to the ESM. The France-Germany declaration calls for a general strengthening of the banking union, quoting a previously-issued blueprint which had noted that “further steps will have to be taken in terms of reducing and sharing risks in the financial sector, in the appropriate sequence, regarding NPLs, insolvency regimes, banking package and anti-money laundering.

A quick note on the Morgan Stanley Capital indexes (MSCI) of individual country stock market performance (of which, movements in currency values are important influences). The MSCI indexes were in the news because it was commonly suggested that announcement of a forthcoming “promotion” of Argentina from the Frontier index to the Emerging Market index (to take effect one year from now, i.e. July 2019) was responsible for a one-day upward movement in the otherwise downwardly-moving peso (there were also announcements regarding Kuwait and Saudi Arabia, with no obvious immediate implications for currency values, as both of these currencies are petro-currencies whose values are fixed against the US$ (Saudi Arabia) and a trade-weighted basket (Kuwait)). The Emerging Markets Index tracks the performance of national stock markets in the following 25 developing countries: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates. The Emerging Market group of currencies has become a favorite benchmark for currency analysts, with the Mexico peso generally the focus of emerging market currency comments. Overall, in the MCSI “family”, there are around 75 countries grouped in three indexes: developed countries, emerging markets and frontier markets. In addition, around 15 other countries are followed on an individual basis (the Saudi Arabia stock market is being added to this list).

WCO has been sorting out the news on major national strikes in Argentina (all workers on June 25) and Brazil (truck/lorry drivers over a 10 day period in May), because they both involved the link between worker compensation and inflation (and inflation is a key determinant of exchange rate values.). The national strike in Argentina was linked to a recurring issue in Argentina, which is the difference between actual rates and the official measurements and/or forecasted rates of inflation. In the period before the election of the current President (Macri), the Argentina official government-announced measurement of inflations rate were widely regarded as not believable –a change in approach since then is generally considered to have restored confidence in government-announced inflation rate measurements. The recent inflation issue in Argentina, which was the major reason for the strike, has been that national wage settlements (25 to 30% increases)reached at the end of 2017 for the current year were based on an official government forecast that turned out to be far below the current inflation rate of around 40%. (It can also be argued that currency markets made the same mistake, incorporating the official inflation figure in their assessment of the appropriate value of the peso, which was one reason for the abrupt fall in the peso in the last few weeks, a sequence of events which eventually saw an IMF up-to-$50 billion bail-out package, which was recently announced). The inflation impact on workers in Argentina was enhanced by more direct price increases, namely fuel and utility prices, as part of government measures to reduce the fiscal deficit). By contrast, the 10 day Brazil lorry (truck) driver strike (more of a work action, because these are independent truckers), was focused more generally on increases in the prices of diesel fuel, due to a policy decision to charge something closer to the world market price for diesel and for petroleum products in general. This policy in Brazil was implemented by Petrobras, the national oil company, and the impact was made even worse by the weakness of the Brazil peso.

India can be added to the list of countries imposing retaliatory tariffs against United States steel and aluminum tariffs, with tariffs on 29 goods ($250 million in value) to go into effect on August 4. As is the case with retaliatory tariffs, the goods involved in many cases have little to do with steel or aluminum – in the case of India, they include United States almond and apple exports. And the US has threatened to punish the motorcycle manufacturer Harley-Davidson, which has announced it is shifting some production away from the United States to Europe, to avoid the impact of EU retaliatory tariffs, which include American motorcycles.

July 18, 2018 update

China yuan and India rupee June 2017

The Albania lek has been under sustained upward pressure for some months now, pushing it up against the Euro and US$, to the extent that the central bank intervened in markets decisively at the beginning of June, pushing the lek down from a high of around 124.2/Euro to 128.34. Since then, it has settled in at around 125.9/Euro (107.5 per 1 US$), which still leaves it up 6.2% against the Euro (8.3% against the US$) since this time last year, a performance which, by far, exceeds any other currency in eastern Europe. Albania is a formerly-Communist country in the Balkan region of eastern Europe, just to the north of Greece, with a long coastline on the Adriatic Sea (all of the currencies in the countries around Albania, including Greece and Italy, are linked to the Euro.) With its wide mix of climate, from a Mediterranean climate along the coast to more continental extremes inland, Albania has long had an important niche as an important producer of many herbs and spices for culinary and medicinal purposes (WCO tracks world spice and herb prices.) While the strength of the lek has had some positive effects (such as payments on US$ denominated debt), the strength of the lek is a source of some unease, one reason being that there have been several reports that Albania authorities have not been quite able to “put their finger” on why the lek has been so strong - one concern is that an important contribution has been an inflow of illegally obtained money from Europe and the Middle East.

An important issue in Eastern Caribbean currency markets (the island countries and territories, comprised of the Eastern Caribbean dollar, the Barbados dollar and the Trinidad and Tobago dollar) has been the availability of foreign exchange in Trinidad and Tobago, with concerns raised by a wide variety of complainants, including: Trinidad importers; exporters on other East Caribbean islands who have experienced difficulties in repatriating funds from Trinidad; and attendees at the recent Caribbean Community CARICOM meetings, where one subject of discussion was said to have be a white paper on currency convertibility in the CARICOM zone (which includes Caribbean island countries with the exceptions of Cuba and the Dominican Republic – Belize in Central America is also a CARICOM member).

Short-term debt issues by Argentina in the middle of July included US$1.6 billion in dual currency bonds maturing in February 2020 (also issued were US$514 million in short-term US denominated debt). The generic definition of a dual currency bond is one in which the principal (money borrowed, money repaid) is in one currency (US$ in the case of this Argentina bond), and the coupon interest is denominated in another currency (for this bond, pesos at a monthly coupon rate of 2.5%, which works out to 28.2% per year.) The Argentina interest rate yield curve is very steep, falling from nearly 45% for a 1 year maturity, to around 20% for a 10 year maturity. The over-4000 basis point spread against equivalent short-term US$ bonds reflects, for the most part, the high level of Argentina inflation and, equivalently, the expected depreciation of the Argentina peso against the US$.

(World Currency Observer will next be updated on August 1, 2018. Visit Search to look at past issues of World Currency Observer (brochure edition).)