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January currency review

A more cautious approach to forthcoming interest rate rises expressed by the United States Federal Reserve produced a rally in emerging-market currencies in late January. Higher returns available in the US generally mean less investment in countries perceived as more risky, so the likelihood of the Fed raising interest rates more slowly than previously expected was good news for developing-world exchange rates.

Many emerging markets are also big exporters of natural resources and their currencies were further buoyed by increases in commodity prices in January

The South African rand was, however, the world's strongest currency over the month (see first table below), taking advantage of the trends mentioned above, as well as an excellent crop-estimates report following good rains. The rand has had a rollercoaster ride recently; it soared when the much-criticised President Zuma was ousted, but then fell heavily as the realisation kicked in that it would take more than a new president to solve the country's many persistent problems. Nevertheless, President Cyril Ramaphosa is now making significant changes and the rand has responded. Despite the ups and downs, the overall result for the currency in the last 12 months (see final table below) has been much less dramatic than many headlines would have suggested, once again showing the value of taking your time before reacting to sudden currency movements.

Countries experiencing largest currency gains in January
Country
Currency code Movement v EUR
31 Dec 2018 - 4 Feb 2019 (%)
Inflation
(%)
Botswana BWP +4 3.5
Brazil BRL +6 3.7
Canada CAD +4 2.0
Chile CLP +6 2.6
Colombia COP +5 3.2
Indonesia IDR +4 3.1
Russia RUB +6 4.3
South Africa (Lesotho, Namibia, Swaziland) ZAR +8 4.5 (5.6, 5.2, 5.3)
Thailand THB +4 0.4

The euro, which turned 20 in January, was quite weak again, as the German economy showed signs (probably temporary) of deterioration and the Brexit process failed to provide any certainty, and few currencies lost much ground against it. The biggest fallers are shown in the next table.

Having gone through several well-publicised crises in the last two decades, many people assume the Eurozone's single currency has been a negative - some have said a disaster! However, others are more positive about its impact. Either way, there is no doubt that the euro has made it a lot easier for global mobility teams to pay salaries of staff posted on intra-continental assignments.

Countries experiencing largest currency losses in January
Country
Currency code Movement v EUR
31 Dec 2018 - 4 Feb 2019 (%)
Inflation
(%)
Ghana GHS -3 9.4
Iceland ISK -3 3.4
Jamaica JMD -4 2.4

In other currency news, last week we reported on Venezuela's latest devaluation and it is now clear that the new official exchange rate is fixed against the US dollar, at USD 1 / VES 3 290. It is less certain that it will remain at that level for long because, interestingly, since the change black-market rates have slumped to USD 1 / VES 2 486, making the official rate for the bolivar relatively undervalued (having been massively overvalued for decades!). Out-bidding the black market for dollars in this way may be a sign of just how desperate the governing regime under President Nicolas Maduro is for foreign exchange amid a deepening, and possibly existential, crisis.

Iran is planning to redenominate the rial, by slashing four zeros from unit values. However, the full process is likely to take two years.

Macedonia, which becomes North Macedonia as of today (6 February), will probably also need to change its money to reflect the country's name change.

As mentioned in a previous post, several countries are moving towards cashless economies. In China, as the FT reports, mobile payments are now so popular that many retailers are refusing to accept cash anymore.

In Ethiopia, reports, and a dedicated tracker, suggest that official and black-market exchange rates are diverging significantly. There is already a 30% gap between the two, meaning that inflation is likely to rise and pressure on the central bank to engineer a devaluation will be building.

Finally, here is this month's selected currency movements table:

Selected currency movements (v EUR)
Country Currency code % movement to 4 February 2019 v EUR since: Latest official annual inflation (%)
    31/12/18
(1 month)
5/11/18
(3 months)
30/7/18
(6 months)
5/2/18
(12 months)
 
Argentina ARS +2 -5 -34 -76 47.6
Australia AUD +3 0 0 -1 1.8
Brazil BRL +6 +1 +4 -5 3.7
Canada CAD +4 -1 +1 +2 2.0
Chile CLP +6 +4 0 0 2.6
China CNY +2 +2 +3 +2 1.9
Egypt EGP +1 +1 +3 +8 12.0
India INR -2 +1 -2 -2 2.2
Indonesia IDR +4 +6 +5 +5 3.1
Japan JPY +1 +3 +3 +9 0.3
Kenya KES +1 +1 +2 +9 5.7
Korea Republic KRW 0 0 +2 +5 1.3
Mexico MXN +3 +4 -1 +5 4.7
Nigeria NGN 0 0 +2 +7 11.7
Norway NOK +3 -2 -1 -1 3.5
Philippines PHP 0 +1 +3 +7 5.1
Poland PLN +1 +1 0 -3 1.1
Russia RUB +6 0 -3 -7 4.3
Singapore SGD +1 +1 +3 +6 0.5
South Africa ZAR +8 +7 +1 -2 4.5
Sweden SEK -1 -1 -1 -5 2.0
Switzerland CHF -1 0 +2 +2 0.7
Turkey TRY +1 +4 -5 -27 20.3
United Kingdom GBP +3 0 +1 0 2.1
United States of America USD 0 0 +2 +8 1.9
Venezuela VES -81 -99 -99 -99 1700000
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