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Separating the winners from the losers: International currencies in 2017

by Anton Van Teylingen | Mar 09, 2017
  • We’re a few months into 2017 and we’ve seen some currencies surprising on the upside, while others have stuttered. Let’s take a look at what could be in store for the Rand, the US Dollar, the Australian Dollar, the New Zealand Dollar, the Euro and the British Pound.
    many different currencies banner

    The South African Rand

    Analysis by Calvin Matsaure

    As global investors seek out South Africa’s superior interest rate yield, the Rand has advanced towards its best levels since 2015.

    Since the beginning of the year, the currency has recorded the second strongest increase of all international currencies. Showing gains of 6.15% against the US dollar and 5.14% against the Euro. In February, it broke through the psychological barrier of 13.00 against the US dollar.

    The resurgence of interest in usage of emerging market currencies for carry trading has benefited the Rand. Many cite this as the main reason for the recent and ongoing rally.

    Analysts at Deutsche Bank argue that, after a period of being one of the most vulnerable emerging market currencies, the Rand has become more resilient to external shocks like higher interest rates in the United States.

    According to analyst Gautam Kalani, the factors contributing to this performance include, “an improving trade balance, some reduction in political uncertainty, avoidance of a ratings downgrade in December and most importantly a pick-up in activity”.

    “The recent data suggest that we could be at the start of an economic turnaround. As such, we expect this resilience to continue and remain bullish on ZAR,” says Kalani.

    USD - ZAR 2017

    The US Dollar

    Analysis by Sebastian Steyn

    The big event in terms of the Dollar’s performance has been the election of President Donald Trump. Since his inauguration, the world has witnessed a lot of dramatic developments in the US market.

    Trump started off his presidency with statements that the USD should weaken and that various foreign countries are manipulating exchange rates in their own interests. This, together with extreme protectionist strategies that he has proposed, weakened the USD.

    After the initial shock, the market settled down and the USD traded mostly in a narrow band.

    At its first meeting of the year, the Fed did not raise rates, but with employment data coming in well above expectations the economy still managed to move upward. These improving conditions have prompted various members of the US Fed to signal the possibility of interest rate hikes coming sooner rather than later.

    The markets reacted strongly, with the USD strengthening quite dramatically against most major currencies. Over the last month, the Dollar was the second-best performer against the British Pound in the basket of currencies that we monitor, only surpassed by the Rand.

    Overall, we expect USD strength to continue over the short-to-medium term. Increases in US interest rates should be Dollar positive, but uncertainty regarding the shape of politics worldwide will also play a major role in the greenback’s performance.

    The British Pound

    Analysis by Anton van Teylingen

    After last year’s Brexit referendum woes, the Sterling continues to struggle in 2017. The Brexit referendum woes that began last year have only compounded as Theresa May looks to press on and trigger the much-debated Article 50, come hell or highwater.

    The so-called Brexit Bill continues to be debated in Parliament with the current deadline set for 31 March.

    The Pound has hit three-year lows against most majors and continues to lose ground; performance over the past year has seen the currency weaken substantially.

    One-year historical performance (04/2016 – 04/2017)

    GBP/EUR

    GBP/USD

    GBP/AUD

    GBP/ZAR

    GBP/NZD

    -10.72%

    -14.52%

    -15.97%

    -27.38%

    -16.76%

    More recently, the GBP has suffered weakness after The Times reported that Theresa May is preparing for a New Scottish Referendum. Whilst this may all be speculative, it is the last thing the GBP needs after a tough year.

    Forecasts from various financial institutions haven’t done much to ease the tumult either. Strategists at JP Morgan have suggested that the GBP/USD rate could fall further. Lloyds, meanwhile, kept their bullish outlook on the Sterling, expecting a recovery this year.

    All in all, it appears that the UK is trying to deal with a hard landing following the Brexit vote last June. What remains clear is that, as long as the future of the UK economy remains uncertain, the Pound will continue to remain volatile and will trend to the downside.

    USD - GBP 2017

    The Euro

    Analysis by Daniel Glyn-Cuthbert

    When it comes to the Euro, the real question to consider is how Brexit is going to affect the EUR - GBP. Since last year’s referendum, the EUR - GBP has strengthened to its highest point since mid-2011.

    This rise has been further elevated as a three-month low PMI and talks of Scotland leaving the UK add extra downward pressure to the Pound.

    Following Theresa may’s defeat in the House of Lords, the Brexit Bill wording will go under debate. Opposition Labour believe they will have enough numbers to amend the bill and guarantee the rights of migrants from the EU living in the UK.

    Due to these uncertain conditions in the Eurozone, we can expect further instability in the Euro, especially in the EUR - GBP pairing.

    Recent developments in the French presidential race have injected fear into the markets over the last month. If Marine Le Pen wins the presidential election, she has promised to pull France out of the EU. As France is the bloc’s third largest economy, a withdrawal from the EU could have devastating effects on the economy and currency.

    A major disruption like this will certainly add to the decline of the Euro against the US Dollar and other major currency pairs. Currently, the EUR has fallen 3.6% over the past year to 1.052 to the USD – the lowest we’ve seen in recent years.

    USD - EUR 2017

    The Australian Dollar

    Analysis by Divesh Govender

    Based on recent global economic data and consensus, the Australian Dollar is trending down.

    Since the election of Donald Trump, inflation has been on the up globally. In Australia, however, lower-than-expected fourth quarter inflation has prompted economists to raise concerns about the outlook of the Aussie economy.

    Most analysts are now bearish on the Australian Dollar. With expectations that the Reserve Bank of Australia may cut interest rates later this year, this is unlikely to change any time soon.

    Additionally, concerns over a slowdown in the Chinese economy, Australia’s largest trading partner, will probably result in a reduction of Australian exports. This would further dampen the AUD’s prospects.

    USD - AUD 2017

    The New Zealand Dollar

    Analysis by Divesh Govender

    The New Zealand Dollar has struggled this year. This is largely due to increased consumer restraint and falling dairy prices (a major export out of New Zealand).

    In early February, Retail Sales Growth came in at 0.8% in Q4 2016; missing its forecast of 1%. This caused the New Zealand Dollar to weaken as investors interpreted this as a decrease in consumer confidence.

    During mid-February, the NZD continued to weaken after the release of Global Dairy Trade Prices. The release indicated that prices of dried whole milk, New Zealand’s largest single export, fell by 3.2%.

    USD - NZD 2017

    Where to from here?

    If there’s one thing that we learned from 2016, it’s that global political surprises are never far away. Events like Trump’s victory and the Brexit vote are stark reminders that when trying to predict currency movements, you are often at the mercy of seemingly capricious international and domestic forces.

    It’s better to play it safe. Don’t buy on spec and try figure out how to sustainably build your wealth in an appropriate currency for your unique situation.


    Send me an email today on anton.vanteylingen@sableinternational.com if you’d like to move money internationally, whether as a business or a private individual. If you’d like a quote on moving money, get in touch with our forex team on fx@sableinternational.com.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

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