A brief look at the worst performing commodity currencies, so far this year shows the Russian ruble is down 43%, followed by the Norwegian krone and Mexican peso at -16% and 12% respectively. The carnage in energy commodities and selloff in metals were largely to blame. But for those who regularly trade G20 currencies, the interesting point is in the Aussie and the loonie, both of which have dropped 8% against the US dollar since the start of the year . But there’s more to the story than simply assessing year-to-date performance.
The Aussie outperformed the loonie from the first trading day of the year due to robust Aussie fundamentals (higher yields, shielded from US ugly figures of Q4 and Q1 and more helpful exposure to China). But this all changed in September, when the Aussie began reacting to more aggressively dovish talk from the Reserve Bank of Australia, deteriorating fundamentals from China (shenanigans in credit markets and accelerating declines in metals) and improving dynamics in Canada and the US. Once the Aussie’s decline caught “down” with the Aussie, the performance became at par.
Looking ahead, the RBA is increasingly expected to cut interest rates in 2015, compared to the Bank of Canada, whose negative oil factor will remove 0.20.3% of GDP, but may not go as far as cutting interest rates.
Considering the Aussie remains near top of this select group of currencies, it could suggest that the downside remains generous. For a nation largely dependent on iron ore as well as on natural gas, the double whammy from the energy/metals erosion could be ominous for the Aussie.
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