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December currency review: Russian rouble enjoys Trump effect

ECA International

The Russian rouble has appreciated 15% against the euro in the last 12 months (see final table below), gaining 7% in December alone. The apparent cordiality between Vladimir Putin and Donald Trump, who takes over the US presidency on 20 January, is raising the potential for international sanctions against Russia to be lifted. At the same time, the price of oil (Russia's dominant export) is rebounding following last month's OPEC deal to cut production.

Countries experiencing largest currency gains in December
Country
Currency code Movement v EUR
28 Nov 2016 - 2 Jan 2017 (%)
Inflation
(%)
Brazil BRL +5 7.0
Colombia COP +6 6.0
Lesotho LSL +4 5.7
Mozambique MZN +5 25.5
Namibia NAD +4 7.3
Russia RUB +7 5.8
South Africa ZAR +4 6.6
Swaziland SZL +4 8.3

In what was a weak month for the euro generally, not many currencies depreciated significantly against it. The Congolese franc fell by the most following President Kabila's failure to step down when, according to constitutional term limits, his 'final' term should have ended on 19 December 2016. The possibility of unrest or more serious conflict is growing, although brokers are trying to force a compromise to end Kabila's tenure.

Countries experiencing largest currency losses in December
Country
Currency code Movement v EUR
28 Nov 2016 - 2 Jan 2017 (%)
Inflation
(%)
DR Congo CDF -6 6.0
Georgia GEL -5 0.2
Somalia SOS -5 n/a
Ukraine UAH -5 12.1

In other exchange rate news, Sri Lanka could be next in line for a significant devaluation, after the central bank governor made it clear earlier this week that the country could not afford to indefinitely support the value of the rupee within its current pegged arrangement. Manipulating an artificially high value for one's currency can cost huge sums in foreign exchange reserves, and Sri Lanka would almost certainly benefit from a more flexible regime.

If not Sri Lanka, then perhaps Iran. The central bank there also recently stressed the need for exchange rate reform, in response to a further widening of the discrepancy between its two official exchange rates. It must be said, however, that the desire to unify rates has been a stated policy aim for several years now and little progress has been made of late, partly because it would involve a substantial devaluation of the managed rate and bring higher inflation.

Libya is also seeing the gap between unofficial and official exchange rates widening, as the black market for hard currencies there thrives amid political and economic chaos. The country is clearly a third candidate for a possible devaluation in the coming months.

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

Selected currency movements (v EUR)

Country Currency code % movement to 2 January 2017 v EUR since: Latest official annual inflation (%)
    28/11/16
(1 month)
3/10/16
(3 months)
4/7/16
(6 months)
4/1/16
(12 months)
 
Argentina ARS -2 +3 0 -18 40.5
Australia AUD -2 +1 +2 +4 1.3
Brazil BRL +5 +6 +4 +18 7
Canada CAD +1 +4 +1 +5 1.2
Chile CLP +2 +5 +5 +9 2.9
China CNY 0 +2 +1 -4 2.3
Egypt EGP -2 -47 -48 -55 19.4
India INR +1 +4 +4 +2 3.6
Indonesia IDR +1 +3 +3 +8 3.6
Japan JPY -3 -8 -8 +8 0.2
Kenya KES 0 +5 +4 +3 6.4
Korea Republic KRW -2 -3 +1 +2 1.3
Mexico MXN 0 0 -7 -15 3.3
Nigeria NGN +3 +9 -2 -47 20.1
Norway NOK 0 -1 +2 +4 3.5
Philippines PHP +1 +4 0 -1 2.5
Poland PLN 0 -3 0 -1 0.1
Russia RUB +7 +9 +10 +15 5.8
Singapore SGD -1 0 -2 +1 -0.1
South Africa ZAR +4 +7 +12 +16 6.6
Sweden SEK +2 +1 -2 -3 1.4
Switzerland CHF 0 +1 +1 +1 -0.3
Turkey TRY -2 -10 -16 -15 7
United Kingdom GBP -1 +1 -2 -19 2.2
United States of America USD 0 +6 +5 +4 1.7
Venezuela VEF -1 +4 -1 -35 180.9
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