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?

Price action in major currencies was again subdued last week. With few tier-one macro data releases for markets to trade off the focus was on the reaction function of governments and central banks to covid-19 related developments.Only a handful of currencies appreciated by more than 1% vs the Dollar last week and no major currency depreciated by more than 0.7%. The net result was that the Dollar Nominal Effective Exchange Rate was down only 0.2% and it is broadly unchanged since Friday.The calendar for tier-one macro data releases and policy events is far heavier this week, particularly in the US, China and UK. OPEC+ is also due to meet on 15th July with expectations that it will announce plans to start increasing oil production.Since its rally in mid-June the Dollar has arguably been trading like a “safe-haven” again, with stronger-than-expected US macro data still mostly benefiting US and global equities. In this context this week’s release of June retail sales figures and NY and Philly Fed manufacturing indices for July will be in markets’ eye-sight.The Sterling NEER is near a one-month high as the British government once again opens the spending taps but UK GDP, inflation, labour market and retail sales data out this week may well put a floor under reasonably high currency volatility.In the Eurozone, macro data are likely to continue to play second fiddle to pan-European policy stimulus measures, with the Euro likely to be sensitive to this Thursday’s ECB policy meeting and in particular the <a href="https://www.consilium.europa.eu/en/meetings/european-council/2020/07/17-18/" target="_blank" rel="noopener">special EU Summit</a> on 17-18 July.The Chinese Renminbi has appreciated a slow but steady 1.7% in the past month but has treaded water in the past four sessions. This week’s sequential June data and Q2 GDP figures could prove a litmus test for the PBoC’s appetite for further currency appreciation.The Australian and New Zealand Dollars are struggling for clear direction but that is not the case of the Thai Baht which, in line with our expectations, has been weakening in July.

Price action in major currencies was again subdued last week. With few tier-one macro data releases for markets to trade off the focus was on the reaction function of governments and central banks to covid-19 related developments.Only a handful of currencies appreciated by more than 1% vs the Dollar last week and no major currency depreciated by more than 0.7%. The net result was that the Dollar Nominal Effective Exchange Rate was down only 0.2% and it is broadly unchanged since Friday.The calendar for tier-one macro data releases and policy events is far heavier this week, particularly in the US, China and UK. OPEC+ is also due to meet on 15th July with expectations that it will announce plans to start increasing oil production.Since its rally in mid-June the Dollar has arguably been trading like a “safe-haven” again, with stronger-than-expected US macro data still mostly benefiting US and global equities. In this context this week’s release of June retail sales figures and NY and Philly Fed manufacturing indices for July will be in markets’ eye-sight.The Sterling NEER is near a one-month high as the British government once again opens the spending taps but UK GDP, inflation, labour market and retail sales data out this week may well put a floor under reasonably high currency volatility.In the Eurozone, macro data are likely to continue to play second fiddle to pan-European policy stimulus measures, with the Euro likely to be sensitive to this Thursday’s ECB policy meeting and in particular the special EU Summit on 17-18 July.The Chinese Renminbi has appreciated a slow but steady 1.7% in the past month but has treaded water in the past four sessions. This week’s sequential June data and Q2 GDP figures could prove a litmus test for the PBoC’s appetite for further currency appreciation.The Australian and New Zealand Dollars are struggling for clear direction but that is not the case of the Thai Baht which, in line with our expectations, has been weakening in July.

Major Economies & Currencies – What to Look Out for and Why It Matters

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

While the United States and China have not gone as far as re-introducing or increasing tariffs on each others’ imports, the war of words between the two trading superpowers has clearly escalated with Hong Kong caught in the middle.In line with our expectations the Chinese Renminbi has depreciated versus (a weaker) Dollar and in nominal effective exchange rate terms in recent weeks (see Figures 1 &amp; 2). Precedent suggests the Renminbi’s slide to an 11-week low is not coincidental but the by-product of the PBoC’s conscious decision to modestly weaken its currency and send a clear, if subtle message to the United States that China can retaliate in more ways than one.The implications of a breakdown in US-China relations and a resumption of a full-blown trade war would of course reach far beyond a possible acceleration in the pace of Renminbi depreciation.For starters any sustained Renminbi weakness would likely increase the odds of other Asian currencies also depreciating versus the Dollar with hands-on central banks keen to maintain their countries’ export competitiveness, particularly at this current juncture. It is no coincidence, in our view, that Asian currencies on the whole remain highly correlated with the Renminbi and have underperformed since 12th May (see Figures 3 &amp; 4).Moreover, the introduction of new import tariffs would, based on precedent, likely have a material and negative impact on world trade at a time when macro data suggest that global economic activity has only just started to very slowly recover from a very low base. Any further headwind to global trade would likely delay any meaningful recovery in global supply and demand (see Figure 5) and cast further doubts on whether sequential global GDP growth can forge a V-shaped recovery in Q3 and Q4 2020 – the topic of our next Smartkarma Insight.

While the United States and China have not gone as far as re-introducing or increasing tariffs on each others’ imports, the war of words between the two trading superpowers has clearly escalated with Hong Kong caught in the middle.In line with our expectations the Chinese Renminbi has depreciated versus (a weaker) Dollar and in nominal effective exchange rate terms in recent weeks (see Figures 1 &amp; 2). Precedent suggests the Renminbi’s slide to an 11-week low is not coincidental but the by-product of the PBoC’s conscious decision to modestly weaken its currency and send a clear, if subtle message to the United States that China can retaliate in more ways than one.The implications of a breakdown in US-China relations and a resumption of a full-blown trade war would of course reach far beyond a possible acceleration in the pace of Renminbi depreciation.For starters any sustained Renminbi weakness would likely increase the odds of other Asian currencies also depreciating versus the Dollar with hands-on central banks keen to maintain their countries’ export competitiveness, particularly at this current juncture. It is no coincidence, in our view, that Asian currencies on the whole remain highly correlated with the Renminbi and have underperformed since 12th May (see Figures 3 &amp; 4).Moreover, the introduction of new import tariffs would, based on precedent, likely have a material and negative impact on world trade at a time when macro data suggest that global economic activity has only just started to very slowly recover from a very low base. Any further headwind to global trade would likely delay any meaningful recovery in global supply and demand (see Figure 5) and cast further doubts on whether sequential global GDP growth can forge a V-shaped recovery in Q3 and Q4 2020 – the topic of our next Smartkarma Insight. 

Chinese Renminbi – Canary in the Coal Mine

The drastic measures which governments across the world have taken so far to mitigate the spread of the coronavirus have few precedents outside of war times and therefore quantifying their economic, financial and social impact remains challenging. However, there is little doubt that economic activity in China, the epicentre of the epidemic, has slowed sharply. Disruptions and delays to international supply chains are impacting global trade and production. Moreover, there is growing evidence that this supply-side shock is feeding through to the demand-side, heaping pressure on the service sector and retailers and forcing governments and corporates to postpone long-term investment plans. Our core scenario, based partly on developments in the global manufacturing PMI, remains that global GDP growth, which had looked set to pick-up slightly in Q1 2020 from about 3.0% yoy in H2 2019, will slow to around 2.5% yoy in Q1, its slowest pace in a decade.This would in turn imply that quarter-on-quarter global GDP growth halved to around 0.35% in Q1 from an average of 0.7% per quarter in 2019 and that the world may, based on the IMF’s definition, be teetering on the verge of a recession.Recent (uncoordinated) central bank policy rate cuts, including the Fed’s inter-meeting 50bp cut, likely further cuts and recently announced modest fiscal stimulus measures will near-term have only a marginally positive impact on global economic growth, in our view. They will have reduced the odds of a global recession but those odds remain significant.However, history suggests that central bank rate cuts may well give further impetus to any global economic recovery further down the line, facilitating a V-shaped recovery.Non-Japan Asian central banks have largely been on the sidelines in the past month, in line with our expectations, but the risk is now biased towards more rather than fewer rate cuts. China’s exchange rate policy in favour of a “strong” Renminbi is indicative.The coronavirus has lowered the until recently high bar for a Bank of England policy rate cut and our core scenario is for a 25bp cut at its 26th March meeting. Similarly, we think the RBNZ will cut rates 25bp on 25th March while noting the RBNZ’s penchant for surprises.

The drastic measures which governments across the world have taken so far to mitigate the spread of the coronavirus have few precedents outside of war times and therefore quantifying their economic, financial and social impact remains challenging. However, there is little doubt that economic activity in China, the epicentre of the epidemic, has slowed sharply. Disruptions and delays to international supply chains are impacting global trade and production. Moreover, there is growing evidence that this supply-side shock is feeding through to the demand-side, heaping pressure on the service sector and retailers and forcing governments and corporates to postpone long-term investment plans. Our core scenario, based partly on developments in the global manufacturing PMI, remains that global GDP growth, which had looked set to pick-up slightly in Q1 2020 from about 3.0% yoy in H2 2019, will slow to around 2.5% yoy in Q1, its slowest pace in a decade.This would in turn imply that quarter-on-quarter global GDP growth halved to around 0.35% in Q1 from an average of 0.7% per quarter in 2019 and that the world may, based on the IMF’s definition, be teetering on the verge of a recession.Recent (uncoordinated) central bank policy rate cuts, including the Fed’s inter-meeting 50bp cut, likely further cuts and recently announced modest fiscal stimulus measures will near-term have only a marginally positive impact on global economic growth, in our view. They will have reduced the odds of a global recession but those odds remain significant.However, history suggests that central bank rate cuts may well give further impetus to any global economic recovery further down the line, facilitating a V-shaped recovery.Non-Japan Asian central banks have largely been on the sidelines in the past month, in line with our expectations, but the risk is now biased towards more rather than fewer rate cuts. China’s exchange rate policy in favour of a “strong” Renminbi is indicative.The coronavirus has lowered the until recently high bar for a Bank of England policy rate cut and our core scenario is for a 25bp cut at its 26th March meeting. Similarly, we think the RBNZ will cut rates 25bp on 25th March while noting the RBNZ’s penchant for surprises.

Global Growth Shaken, Central Banks Stirred

New Zealand

The New Zealand dollar is the official currency of New Zealand.  

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NZD (NZD BGN CURNCY)

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

Major Economies & Currencies – What to Look Out for and Why It Matters

Price action in major currencies was again subdued last week. With few tier-one macro data releases for markets to trade off the focus was on the...

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

Chinese Renminbi – Canary in the Coal Mine

While the United States and China have not gone as far as re-introducing or increasing tariffs on each others’ imports, the war of words between...

Olivier Desbarres

Global Growth Shaken, Central Banks Stirred

The drastic measures which governments across the world have taken so far to mitigate the spread of the coronavirus have few precedents outside of...

Olivier Desbarres

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52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)