Founder

Olivier Desbarres

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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

Media and analyst reports focussing on the scope for further US Dollar weakness and Emerging Market currency outperformance have continued to proliferate in the past month. The consensus view is still seemingly that a Democratic administration will fuel large US twin deficits and expectations of higher domestics inflation while Fed will keep rates on hold, eroding the value of Dollar assets. At the same time a pick-up in global confidence, economic growth and risk appetite will benefit EM and commodity currencies.While the “safe-haven” Dollar weakened sharply and EM currencies outperformed in the wake of the US elections on 3rd November recent facts tell a different story. Since 10th December the Dollar Nominal Effective Exchange Rate (NEER) and GDP-weighted baskets of developed and EM currencies have been broadly flat according to our calculations. Central European and Latin American currencies, which outperformed in November, have underperformed in past five weeks. Emerging Asian currencies, including the Chinese Renminbi, have done little since 10th December pointing to still active central bank FX management. This price action has broadly tallied with our near-term view that EM currencies will be “prone to sharp sell-offs (even if short-lived)”.Our analysis suggests that the steepness of the US Treasury yield curve rather than inter-country yield spreads matters more for the Dollar.However, we think central banks and sovereign wealth funds’ diversification out of Dollars into other reserve currencies, including Euro, Sterling, and Canadian, Australian and Kiwi Dollars, between May and early December was the main driver of Dollar depreciation.Dollar NEER’s stability since 10th despite a further 2.7% gain in the S&amp;P 500 suggests this diversification process has stalled, which we think is partly due to stretched valuations. At the same time price action points to a rotation out of the Euro into Sterling.We stick with our view that Dollar depreciation may not resume for another couple of months and will in any case not be as broad based as in November/early-December with markets paying greater attention to domestic factors, including valuations.

Media and analyst reports focussing on the scope for further US Dollar weakness and Emerging Market currency outperformance have continued to proliferate in the past month. The consensus view is still seemingly that a Democratic administration will fuel large US twin deficits and expectations of higher domestics inflation while Fed will keep rates on hold, eroding the value of Dollar assets. At the same time a pick-up in global confidence, economic growth and risk appetite will benefit EM and commodity currencies.While the “safe-haven” Dollar weakened sharply and EM currencies outperformed in the wake of the US elections on 3rd November recent facts tell a different story. Since 10th December the Dollar Nominal Effective Exchange Rate (NEER) and GDP-weighted baskets of developed and EM currencies have been broadly flat according to our calculations. Central European and Latin American currencies, which outperformed in November, have underperformed in past five weeks. Emerging Asian currencies, including the Chinese Renminbi, have done little since 10th December pointing to still active central bank FX management. This price action has broadly tallied with our near-term view that EM currencies will be “prone to sharp sell-offs (even if short-lived)”.Our analysis suggests that the steepness of the US Treasury yield curve rather than inter-country yield spreads matters more for the Dollar.However, we think central banks and sovereign wealth funds’ diversification out of Dollars into other reserve currencies, including Euro, Sterling, and Canadian, Australian and Kiwi Dollars, between May and early December was the main driver of Dollar depreciation.Dollar NEER’s stability since 10th despite a further 2.7% gain in the S&amp;P 500 suggests this diversification process has stalled, which we think is partly due to stretched valuations. At the same time price action points to a rotation out of the Euro into Sterling.We stick with our view that Dollar depreciation may not resume for another couple of months and will in any case not be as broad based as in November/early-December with markets paying greater attention to domestic factors, including valuations.

Dollar – Diversification, Rotation and Valuations

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

New Zealand

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

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NZD (NZD BGN CURNCY)

Dollar – Diversification, Rotation and Valuations

Consensus view remains that USD will depreciate and EM currencies outperform. But that's not been the case in past 5 weeks as reserve...

Olivier Desbarres

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

Price Gauge

52-week Range

Market Cap (USDm)

P/E

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