Founder

Olivier Desbarres

Exacting. Excellent. Exceeding. Exemplary.

4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

FX & Rates

This report updates the monthly seasonal patterns of 31 major Nominal Effective Exchange Rates(NEERs) going back to January 2010, using over two million daily data points with trade-weights derived from the<a href="https://www.bis.org/statistics/eer.htm" target="_blank" rel="noopener"> BIS</a> (April 2019) and national central banks (see <a href="https://gallery.mailchimp.com/948838a86ce72ab6d8019a39d/files/15f4d8a9-56a4-46fd-9d78-607e5fd523e6/4X_Global_Research_Nominal_Effective_Exchange_Rates_Monthly_seasonal_patterns.pdf" target="_blank" rel="noopener">Nominal Effective Exchange Rates: Monthly seasonal patterns</a>, 10 January 2019). A number of factors can drive currency seasonality, including underlying seasonal patterns in balance of payment flows, the timing of public holidays and market liquidity. However, significant changes in central bank or government policy, major domestic events (e.g. Brexit) and once-in-a-lifetime “black swan” events such as the Covid-19 pandemic January can break down even well established seasonal currency patterns. In emerging Asia interventionist central banks have in part eroded monthly currency seasonality.Unsurprisingly, typical monthly seasonal currency patterns broke down in 2020, with a few exceptions. In particular, when global risk sentiment collapsed in March and peaked in June only a handful of currencies moved broadly in line with their historical patterns. Historical seasonal patterns somewhat re-established themselves in Q3 (notably August) with domestic factors once again driving asset prices, including currencies. But the resurgence in Covid-19 cases and deaths in Q4 along with the re-imposition of national lockdowns once again contributed to a breakdown in historical seasonal patterns, albeit not as marked as in March or June.The Brazilian Real and Colombian Peso NEERs recorded the strongest average rates of appreciation in the month of January in 2010-2019, while the Turkish Lira and Russian Rouble were the weakest. About 15 NEERs traded broadly in line with their historical patterns in January 2020.However, the Covid-19 pandemic was still in its infancy and its impact on global economies and financial markets still modest. The risk is that many currencies, including the typically strong Swiss Franc, may in January 2021 continue to deviate materially from their 2010-2019 seasonal patterns in our view.

This report updates the monthly seasonal patterns of 31 major Nominal Effective Exchange Rates(NEERs) going back to January 2010, using over two million daily data points with trade-weights derived from the BIS (April 2019) and national central banks (see Nominal Effective Exchange Rates: Monthly seasonal patterns, 10 January 2019). A number of factors can drive currency seasonality, including underlying seasonal patterns in balance of payment flows, the timing of public holidays and market liquidity. However, significant changes in central bank or government policy, major domestic events (e.g. Brexit) and once-in-a-lifetime “black swan” events such as the Covid-19 pandemic January can break down even well established seasonal currency patterns. In emerging Asia interventionist central banks have in part eroded monthly currency seasonality.Unsurprisingly, typical monthly seasonal currency patterns broke down in 2020, with a few exceptions. In particular, when global risk sentiment collapsed in March and peaked in June only a handful of currencies moved broadly in line with their historical patterns. Historical seasonal patterns somewhat re-established themselves in Q3 (notably August) with domestic factors once again driving asset prices, including currencies. But the resurgence in Covid-19 cases and deaths in Q4 along with the re-imposition of national lockdowns once again contributed to a breakdown in historical seasonal patterns, albeit not as marked as in March or June.The Brazilian Real and Colombian Peso NEERs recorded the strongest average rates of appreciation in the month of January in 2010-2019, while the Turkish Lira and Russian Rouble were the weakest. About 15 NEERs traded broadly in line with their historical patterns in January 2020.However, the Covid-19 pandemic was still in its infancy and its impact on global economies and financial markets still modest. The risk is that many currencies, including the typically strong Swiss Franc, may in January 2021 continue to deviate materially from their 2010-2019 seasonal patterns in our view.

Monthly Currency Seasonality: Down and Out?

Media coverage of Emerging Market currencies tends to oscillate between the very bearish and very bullish, with little differentiation between low and high-yielding currencies or between regional blocks let alone between the dozens of currencies still referred to, rightly or wrongly, as “emerging”. Price action in 2019 only partially vindicates this approach.News articles about the November EM currency rally and the long list of factors supporting further outperformance next year have been rife.EM currencies, particularly high-yielders, materially outperformed in the fortnight following the US elections thanks in part to a pick-up in portfolio inflows. The prevailing view was/is that a less conflictual Biden presidency will be a net positive for global trade and commodity prices. EM currencies appreciated further following news on 23rd November that the more affordable Astra Zeneca vaccine was up to 90% effective and Trump’s announcement that he would allow the transition of power to President-elect Biden.However, in the past two weeks a GDP-weighted basket of EM currencies (excluding the Chinese Renminbi) has appreciated only 0.9% versus the Dollar and underperformed a basket of developed market currencies (+1.3%). Moreover, high yielding EM currencies (+1.1%) have only marginally outperformed low-yielding EM currencies (+0.7%). Domestic and regional factors over-and-above “global risk appetite” have arguably contributed to the outperformance of Central European and Latam currencies and the more mixed (read subdued) performance of high-yielding EM and Asian currencies. One explanation is that some of these EM currencies are already pricing in a lot of “good” news.The consensus forecast is seemingly that EM currencies will outperform both the Dollar and developed market currencies going forward. The long list of supporting factors includes i) cheap EM valuations, ii) EM currencies’ yield advantage, iii) the benefits to EM of further Dollar depreciation and iv) a rebound in global economic growth. We sympathise with this view, albeit with some important caveats. One is that more interventionist Asian central banks may stop their currencies from fully joining any EM currency party in 2021. Moreover, we would split the next 13 months into three timelines.

Media coverage of Emerging Market currencies tends to oscillate between the very bearish and very bullish, with little differentiation between low and high-yielding currencies or between regional blocks let alone between the dozens of currencies still referred to, rightly or wrongly, as “emerging”. Price action in 2019 only partially vindicates this approach.News articles about the November EM currency rally and the long list of factors supporting further outperformance next year have been rife.EM currencies, particularly high-yielders, materially outperformed in the fortnight following the US elections thanks in part to a pick-up in portfolio inflows. The prevailing view was/is that a less conflictual Biden presidency will be a net positive for global trade and commodity prices. EM currencies appreciated further following news on 23rd November that the more affordable Astra Zeneca vaccine was up to 90% effective and Trump’s announcement that he would allow the transition of power to President-elect Biden.However, in the past two weeks a GDP-weighted basket of EM currencies (excluding the Chinese Renminbi) has appreciated only 0.9% versus the Dollar and underperformed a basket of developed market currencies (+1.3%). Moreover, high yielding EM currencies (+1.1%) have only marginally outperformed low-yielding EM currencies (+0.7%). Domestic and regional factors over-and-above “global risk appetite” have arguably contributed to the outperformance of Central European and Latam currencies and the more mixed (read subdued) performance of high-yielding EM and Asian currencies. One explanation is that some of these EM currencies are already pricing in a lot of “good” news.The consensus forecast is seemingly that EM currencies will outperform both the Dollar and developed market currencies going forward. The long list of supporting factors includes i) cheap EM valuations, ii) EM currencies’ yield advantage, iii) the benefits to EM of further Dollar depreciation and iv) a rebound in global economic growth. We sympathise with this view, albeit with some important caveats. One is that more interventionist Asian central banks may stop their currencies from fully joining any EM currency party in 2021. Moreover, we would split the next 13 months into three timelines.

Emerging Market Currencies: Hopes and Realities

Major currencies, equity markets and the price of crude oil since 8th June – the cycle low in the US Dollar – have exhibited reasonably limited directionality, narrow trading ranges and very low volatility, with the notable exception of currencies in Central and Latin America.However this is not a case of more confident financial market participants finding their feet, in our view. Rather it is a reflexion of greater global risk aversion, with financial markets unable to see through the smoke and reluctant to pit themselves against their peers and test monetary authorities’ resolve at a time of still acute uncertainty on many levels.

Major currencies, equity markets and the price of crude oil since 8th June – the cycle low in the US Dollar – have exhibited reasonably limited directionality, narrow trading ranges and very low volatility, with the notable exception of currencies in Central and Latin America.However this is not a case of more confident financial market participants finding their feet, in our view. Rather it is a reflexion of greater global risk aversion, with financial markets unable to see through the smoke and reluctant to pit themselves against their peers and test monetary authorities’ resolve at a time of still acute uncertainty on many levels.

Risk Aversion, Not Panic, in Face of Uncertainty

The majority of major developed and Emerging Market currencies have contnued to trade in narrow ranges versus the US Dollar in the past three weeks. The five narrowest ranges (&lt;1.5%) have all been recorded by Asian currencies. We attribute this to the willingness and ability of Asian central banks to keep their currencies broadly aligned with the currencies of their main trading partners – namely the Chinese Renminbi and US Dollar - which have been particularly stable in recent weeks.27 of these 32 major currencies have depreciated or appreciated by 2.5% or less against the US Dollar over this period.On the surface it would seem that markets, faced with acute uncertainty, are keen to fade any material currency moves.However, half of these 32 major currencies were, as of yesterday’s close of business, at or testing the extremes of their admittedly (in most cases) narrow ranges versus the US Dollar, with the Brazilian Real within touching distance of its record low (hit on 8th May) and conversely the Philippines Peso at a multi-year high.  The question is which of these currencies is likely to extend their gains/or losses and/or potentially break out of its recent ranges.Near-term we see downside risks to the Chinese Renminbi and Brazilian Real versus the US Dollar and Swiss Franc.

The majority of major developed and Emerging Market currencies have contnued to trade in narrow ranges versus the US Dollar in the past three weeks. The five narrowest ranges (&lt;1.5%) have all been recorded by Asian currencies. We attribute this to the willingness and ability of Asian central banks to keep their currencies broadly aligned with the currencies of their main trading partners – namely the Chinese Renminbi and US Dollar - which have been particularly stable in recent weeks.27 of these 32 major currencies have depreciated or appreciated by 2.5% or less against the US Dollar over this period.On the surface it would seem that markets, faced with acute uncertainty, are keen to fade any material currency moves.However, half of these 32 major currencies were, as of yesterday’s close of business, at or testing the extremes of their admittedly (in most cases) narrow ranges versus the US Dollar, with the Brazilian Real within touching distance of its record low (hit on 8th May) and conversely the Philippines Peso at a multi-year high.  The question is which of these currencies is likely to extend their gains/or losses and/or potentially break out of its recent ranges.Near-term we see downside risks to the Chinese Renminbi and Brazilian Real versus the US Dollar and Swiss Franc.

Conservative FX Markets Testing (Some) Extremes

Deputy Chief Economist

Sharmila Whelan

Independent and original Asian investment research

Aletheia Capital

Aletheia Capital (HK) Ltd. (previously known as Asianomics) combines the extensive knowledge of its experienced team with technology and regulatory changes to disrupt Global Markets business in Asia. The firm is completely independent with no conflicts of interest either on Investment Banking advisory or Capital Markets execution.

Macroeconomics

Rising debt stress among BRI partnering countries has cast a shadow over the entire project. Last week Beijing signalled a new approach as concerns grow over loss making ‘vanity project’. To help  more adventurous investors to decide which countries to increase exposure and which to avoid we asses and rank 18 key BRI frontier countries on the seven external debt sustainability stress indicators. Myanmar ranks 1, and Mongolia last but in general Asian BRI frontier countries are less likely to run into external debt servicing difficulties than central Asian economies.

Rising debt stress among BRI partnering countries has cast a shadow over the entire project. Last week Beijing signalled a new approach as concerns grow over loss making ‘vanity project’. To help  more adventurous investors to decide which countries to increase exposure and which to avoid we asses and rank 18 key BRI frontier countries on the seven external debt sustainability stress indicators. Myanmar ranks 1, and Mongolia last but in general Asian BRI frontier countries are less likely to run into external debt servicing difficulties than central Asian economies.  

Chile

The Chilean peso is the official currency of the Republic of Chile.  The US dollar is the official currency of the United States of America.

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Monthly Currency Seasonality: Down and Out?

Covid-19 pandemic and national lockdowns in 2020 wreaked havoc with historical monthly seasonal patterns for developed and EM currencies. But what...

Olivier Desbarres

Emerging Market Currencies: Hopes and Realities

EM currencies appreciated vs USD and outperformed in fortnight following US elections but since then performance more differentiated. Consensus is...

Olivier Desbarres

Risk Aversion, Not Panic, in Face of Uncertainty

Major currencies, equity markets and the price of crude oil since 8th June – the cycle low in the US Dollar – have exhibited reasonably limited...

Olivier Desbarres

Conservative FX Markets Testing (Some) Extremes

The majority of major developed and Emerging Market currencies have contnued to trade in narrow ranges versus the US Dollar in the past three...

Olivier Desbarres

China BRI Countries - Whose Vulnerable?

Rising debt stress among BRI partnering countries has cast a shadow over the entire project. Last week Beijing signalled a new approach as concerns...

Sharmila Whelan

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