Greg Gibbs, Director at Amplifying Global FX Capital, notes that the commodity currencies have performed solidly while the main exception is the ZAR, undermined by political risks.
“NZD has underperformed its peers lately receiving less support from dairy prices.
Recent USD gains are less about renewed strength in the US economy and more about weaker trends in JPY, GBP and EUR spilling over to several emerging markets through direct links to their currencies or via currency basket regimes. Commodity currencies and some emerging market currencies that are less influenced by these weaker major currencies, with more stable political environments, have performed solidly against the USD.
We may continue to see weakness in non-dollar major currencies, provided the US economy and rates outlook remains stable. And we may see more spill over to some EM currencies in coming weeks. Both EUR and JPY appear to be developing more sustained weaker trends and they may have some way to unwind excess gains in the first half of the year as vicious cycles turn to virtuous ones (related to rising global bond yields). In essence, their currencies may weaken in response to their negative interest rates, improving inflation expectations, and a sense that their easy monetary policies are succeeding in holding down real yields.”