The uncertainty of the economic situation in the countries “the Big seven” (UK, Germany, Italy, Canada, USA, France and Japan) and the reduction of risks in developing countries has led to the fact that in early may, the key currency of the world fluctuated much stronger than the currencies of developing countries, writing in his review, the economists at Sberbank CIB Tom Levinson and Iskander Lutsky.
Emerging-market currencies against the U.S. dollar look better with the beginning of the year. The MSCI Emerging Markets index Currency, including currencies of 25 countries, from the beginning of the year increased in dollar terms by 3.1%, although since the beginning of may he had lost about 2%.
Levinson and Lutsky noted that the tense situation around the U.S. dollar, Euro, pound sterling and yen created expectations of a British exit from the European Union and the uncertainty of the monetary policy of the fed and Bank of Japan. In this regard, declined and other currencies, in which investors betting recent: South African Rand, Turkish Lira and Australian dollar.
According to Levinson and Lutsk, the Russian ruble very successfully resists negative trends. Since may 1, the U.S. dollar fell against the ruble by about 0.5%.
The alternative to the dollar
Analysts surveyed by RBC, believe that waiting for the next US Federal reserve meeting, scheduled for June, can add to the investment portfolio of a new stable currency, which compensate for the increasing instability of the dollar.
According to the analyst of the company “Discovery Broker” Andrei Kochetkov, it can be the currencies of the developed Nordic countries — Swedish, Norwegian and Danish kroner, which have a low volatility. If we consider currency as an investment tool, not a “safe Harbor”, it makes sense to add to the portfolio of the Australian dollar, says Kochetkov.
Since mid-April, the Australian dollar (current exchange rate — $0,74) pretty much sank to the US dollar, losing over a month of 4.6%. Kochetkov believes that the Australian dollar will continue to grow: in 2016, according to forecasts, the Australian economy will grow on 2,5–3,5%, and in 2018 — by 3-4%. However, unemployment in Australia declined in 2015 to a multi-year high at 5.7%.
Senior analyst at GK Forex Club Alena Afanasyeva adds that the decline in the Australian currency may be delayed because of slowing demand for Australian commodities in China (the main trading partner countries) and stagnation in the mining industry of Australia.
Chief financial analyst and managing Director of investment company ECN24 Sergey Melnikov said that in the next two or three months a good investment can become the Norwegian Krone and Mexican peso. “The Norwegian Krone refers to the commodity currencies, but the impact of cheap oil on it was quite limited, as Norway’s economy is well diversified,” explains the economist.
The country’s GDP, said Melnikov, and this year will grow by 3%, the index of unemployment is at 4.6% is one of the lowest in Europe, while inflation may reach 2.5%. In conditions when EU authorities are trying to prevent a deflationary crisis, this figure looks quite encouraging, said Melnikov. In addition, the Central Bank of Norway, unlike Sweden and Denmark, did not take interest rates into negative territory. Now the key rate of the Norwegian Central Bank is 0.5%.
In Mexico, GDP growth in 2016 may reach 2.5%. There is also low unemployment (4.5%) and moderate inflation, which was projected to Melnikov, in the current year will reach of 2.48%. Mexican key rate of the Central Bank remains quite high (3,75%), which provides support to the peso, says Melnikov.
What’s the catch
Investors should keep in mind that the universal monetary tool that would allow to hedge all external and internal risks at once does not exist, the analyst of Raiffeisenbank Denis Poryvai.
Each scenario requires its own strategy. For example, if a market participant expects a British exit from the EU, he should pay attention to the Swiss franc, which will inevitably benefit from the weakening Euro, the expert said. A similar approach applies to the upcoming fed decision on the results of the June meeting. If suddenly the us Central Bank will keep interest rates unchanged, will benefit emerging-market currencies, including the ruble and the yuan, says Poryvai.
Analyst UK “the alpha-the Capital” Andrew Schenk says that, despite some uncertainty today, the long-term Outlook for the dollar is obvious: the fed has clearly signaled that it will continue its policy of raising interest rates this year. And this may happen in June of this year. Raising interest rates means that the us dollar will inevitably strengthen to all currencies, including the Scandinavian crown, says Schenk.
A serious drawback of rare currency are high costs for their purchase, says a senior analyst “Alpari” Anna Bodrov. According to her, exotic currencies including the Norwegian Krone is illiquid instruments. “Currency of Asia moving and volatile currency North European countries, by contrast, is steady and predictable,” she says. Sergey Melnikov said that the way for the investor who wants to buy kroner or pesos could be futures on the currency pair that you can buy on world markets.