Quarterly currency roundup – cfx
Currencies Direct December 16th 2014 - 2 minute read
You can divide the best and worst performing currencies in Q4 2014 into two distinct groups; major oil exporters and everyone else. If black gold makes up a big part of your exports it has been an annus horribilis as the declining oil price hit government tax receipts and fx markets pushed down the value of their currencies. Some nations have fared better than others, with most pain suffered from those nations that are dependent on higher oil prices to balance their books. Saudi Arabia, as the lowest cost producer of oil, has escaped with little impact on the riyal. Countries dependent on oil towards $100 per barrel suffered fully blown currencies crises. The Russian rouble and Nigerian naira are down 50% against the Dollar on the year so far, with only direct intervention from central banks stopping the slide lower. Europe’s biggest oil exporter – Norway, saw its currency decline significantly, not on the scale of the rouble, but is still down over 13% in 2014 with more to come as the Norwegian central bank eases monetary policy.
The big winner from the oil price decline from an FX perspective has been the US Dollar. The US economy not only benefits significantly from lower oil prices but has seen significant inflows on the back of falling emerging market currencies. The US central bank also indicated at its most recent meeting that it will be looking to begin raising interest rates at some point next year, with the markets best estimates of this now the middle of 2015. Higher interest rates will also see a strengthening Dollar moving forward.
Sterling had a quiet quarter against both the Dollar and Euro after a brutal Q3 when the Bank of England walked the market back from impending rate increases and the Pound fell significantly. We now do not expect any rate increase for 2015 as continued weakness from the euro zone constrains growth in the UK. Any significant movement in the pound will be driven by developments in the US, which is discussed above and euro zone, which hinges on the European Central Bank undertaking sovereign QE in early January. The move still faces major opposition from the Germans but with the deflationary oil shock set to push already low inflation negative, the ECB need to act fast and decisively and that will include a lower Euro in 2015.