Not exactly in droves, but so far this year we’ve seen sizeable, across the board moves in the foreign exchange market. Technically, this is a secondary indicator, a basic tenet of Dow Theory, where moves in one market must be backed up by similar shifts in related instruments. Dow applied this to the Dow Industrial and Transport indices; we would look for eurozone bourses to move in ways that are mirrored around the single currency region. The US dollar’s value is the ultimate replicable measure.
I like to rank currencies like football teams, from the premier league all the way down to the dogs languishing at the bottom. Rankings are based on international access, daily market turnover, store of value, and commercial usefulness. Under these criteria only a dozen or so really fit this group; from them we try to pick those most likely do well. Two weeks ago we looked at four of these; today we’ll scrutinise another four.
Interestingly most emerging market currencies have barely budged this year, despite heightened geo-political risk, holding within 5 per cent of January’s exchange rate to the US dollar. A second group has appreciated by 6 to 10 per cent from our starting point and includes the more developed Asian nations such as South Korea and Singapore, major Europeans, and Israel. The biggest surprises have been NAFTA partners, with the Canadian dollar initially losing 3 per cent of face value to reverse this since May, and add another 6 per cent as at today’s exchange rate. South of the border the Mexican peso, hard hit because of the threatened wall and trade tariffs, has done nothing but get stronger this year – by a whopping 18 per cent.
Will this trend continue through to the year-end? The Canadian dollar certainly has room to appreciate because we kicked off this year at a historically extremely weak point. Today we are testing the psychological C$1.2500, chart support which has held since early 2015. A sustained break below here should get it down to just C$1.1400 per greenback, almost one standard deviation below the mean regression since 1972.
Canadian dollar
The New Zealand dollar, like the Canadian dollar , is classed as a commodity currency. At a current value of US$0.7425 per kiwi, it is at its strongest in two years and the rally’s taken many by surprise. However, from a long-term perspective, since free market reforms were adopted in the mid-1980s, we are today trading at the mean regression since then. Therefore, a rally to $0.8000 is possible by Christmas and then on to $0.8500-$0.8900 further out if bullish momentum increases.
New Zealand dollar
The Swedish krona in 2016 was close to its weakest ever levels; this year it’s strengthened for five consecutive months. The SEK 8.0000 per US$ has limited the downside since early 2015 and further support for the greenback lies at SEK 7.8000. However, with a bit of a will and a spring in its step produced by moves in other coinage, a drop to SEK 6.9000 should be allowed for.
Swedish krona
The Japanese yen is considered a store of value, having seen the biggest appreciation of all currencies since exchange rates were allowed to float freely. The planned devaluation in 2013 ended a long time ago and the Bank of Japan has failed to beat deflation. It too should strengthen – slowly.
Japanese yen
