(BFM Bourse) – The greenback continues to gain ground against other currencies, in particular theeuro. But other currencies, notably the Brazilian real or the Swiss franc, behave much better against the dollar.
King dollar has rarely been so imperial. Buoyed by its status as a safe haven and by expectations of a tightening of monetary policy by the Federal Reserve (Fed), the greenback has recorded substantial gains against many other leading currencies since the beginning of the year 2022.
The US dollar index (DXY), an index that measures the evolution of the dollar against a basket of other currencies such as theeuro (whose weighting is the highest in the basket with 57.6%), the yen, the pound or the Swiss franc, has jumped nearly 14% since the start of the year.
The strength of the greenback, which penalizes certain commodities such as oil, was particularly visible against the euro, which fell back below parity this summer, and is struggling to stay above parity. The European currency is penalized by fears of recession on the Old Continent, against the backdrop of soaring electricity and gas prices. UBS bank does not anticipate any change in trend. The Swiss establishment recently updated its forecasts, and anticipates a euro to $0.96 in December, which would then remain below $1 until June 2023.
Beyond its 13.8% increase against theeurothe dollar also recorded significant increases against the pound sterling (+17%), the Norwegian krone (+13.8%), or the yen (+22%) which hit 24-year lows.
The Brazilian real and the peso stronger than the dollar
However, some currencies are resisting. Among the currencies of emerging countries, the dollar is even down against the Brazilian real (-5.9%) and the Mexican peso (-1.8%).
“The Brazilian real and Mexican peso showed surprising resilience against the rising dollar, likely supported by high interest rates in Brazil and Mexico and less worrisome economic prospects than their neighbours.” , underlines UBS.
The Brazilian real is benefiting from the impressive tightening of the monetary policy of the Banco Central do Brasil, the central bank of Brazil. “The institution has been ultra-proactive in fighting inflation. In August it raised its key policy rate for the twelfth time in a row [le Selic, NDLR] at 13.75%“, emphasizes John Plassard, director and investment specialist at Mirabaud.
Inflation (although at a still high level) is decelerating, which also benefits the currency, adds the expert. In July, price increases remained limited to 10% over one year and even fell over one month. The strong rise in oil prices has also supported the Brazilian real, Brazil being the eighth largest producing country according to the US Department of Energy.
The Mexican peso is also benefiting from the rise in key rates, with the Bank of Mexico having raised its rate to a record level of 8.5% two weeks ago. The Mexican government has also practiced a cautious fiscal policy, resisting calls for stimulus even at the height of the pandemic.
As Bloomberg points out, the Mexican currency is also driven by industrial relocation, with American companies repatriating part of their Asian production units to Mexico, due to wage increases in China, the country’s zero-Covid policy (which creates significant production disruptions) and increased transport costs. This translates into investments and an improvement in the country’s balance of payments. “Mexico has begun to recover the competitive advantages it lost decades ago,” Hari Hariharan, managing director of hedge fund NWI Management, told Bloomberg in New York.
Switzerland and its ultra-resilient economy
Beyond the currencies of emerging countries, certain currencies of developed countries hardly lost ground against the greenback. The US dollar has only gained 4% since the start of the year against its Canadian counterpart at 1.3147 Canadian dollars. Here again, the currency of the country with the linden leaf was supported by a Bank of Canada “ultra-proactive and which quickly raised its key rate” to raise it to 2.5% in mid-July, underlines John Plassard.
Inflation remains contained, standing at 7.6% in July, a marked slowdown compared to 8.1% in June. Rising oil prices – Canada being the world’s fourth largest producer – are also affecting the currency’s appeal. According to UBS, the Canadian dollar has a clear potential for appreciation, the Swiss bank expecting a rate of 1 US dollar for 1.24 Canadian dollars in June 2023.
The Swiss franc also holds its rank. The US dollar gained only 7.5% against the Swiss currency. “In June, the Swiss National Bank (SNB, the Swiss central bank) decided to no longer intervene to prevent the appreciation of the Swiss franc, because this appreciation constitutes a bulwark against inflation, the prices of imported products becoming cheaper” , recalls John Plassard.
“Inflation is under control, at 3.4% over one year [en juillet et juin NDLR]full employment is maintained and despite the expensive Swiss franc, Swiss exporting companies are recording good results”, he adds.
The dollar is also taking relatively moderate gains against the Australian dollar, rising 6.7% since early January. Australia benefits from a robust economic situation, with growth expected at 3.8% by the IMF for this year and 2.2% the following year.
“Major factors include Australia’s record trade balance due to high energy prices [et des métaux NDLR]a robust domestic economy and signs that China is ready to intensify its stimulus measures, which has supported the actions of the main mining groups” details UBS.
[Note : les cours de change ont été arrêtés vendredi en fin de matinée]
Julien Marion – ©2022 BFM Bourse