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Canadian Dollar, Australian Dollar at 10-Week Highs on Commodities Strength; Rand and Ringgit Impress

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The Canadian dollar climbed on Friday to its highest level in ten weeks on the back of an impressive end-of-year rally in the prices of oil, copper and gold. Other commodities-sensitive currencies like the Australian dollar, South African rand and Malaysian ringgit, among others, were also well supported.

As WTI crude oil reached a two-and-a-half-year high above $60 per barrel and copper recorded its best December in nearly three decades, the Canadian dollar rose to within a whisker of buying 80 US cents (US$ 0.799) and fetched more than 90 yen around lunchtime in New York.

A bout of profit-taking in the week’s final hours saw the “loonie” give back much of the day’s gains but the currency nonetheless had a good week, gaining in value against both the US dollar and yen in four of the week’s five trading days. End-of-week CAD rates of US$ 0.795 and ¥ 89.50 mean the currency has appreciated by 2.5% since December 19th.

The commodities rally has also sparked a revival in the Australian dollar, which had lost nearly 8% of its value against the US dollar between September and early December. AUD/USD rose to a nine-and-a-half-week high of US$ 0.7825 on Friday before settling a shade above US$ 0.78.

Holders of South African rand couldn’t have hoped for more as the ongoing commodities surge has coincided with a new, pro-business leader of the ruling African National Congress party – billionaire businessman Cyril Ramaphosa. The rand rose on Thursday to a twenty-nine-month high of US$ 0.08173 before ending the week at US$ 0.081. It is now 7% higher against the dollar since Ramaphosa’s leadership victory on December 18th, for a total return of 18% in the past seven weeks. The rand has been similarly impressive against the yen, against which it now buys ¥ 9.043.

In Asia, the Malaysian ringgit ended the year with a bang. Friday saw the ringgit record its ninth consecutive weekly gain as it rose to a fifteen-month high of US$ 0.2473. The past fortnight has seen the ringgit overtake the Thai baht to become the second-best performing Asian currency of the year. The ringgit gained 10.9% against the dollar in 2017, versus a gain of 10% for the baht. Both currencies fell short of the 13.2% gained by the South Korean won.

The ringgit’s trajectory in 2017 is a welcome change for Malaysians (barring exporters), who had to watch the currency’s value tumble to a nineteen-year low in 2016. Further to a rising oil price, the ringgit benefitted this year from bets that the Malaysian central bank, Bank Negara Malaysia, will soon raise interest rates.

Chief among FX themes in 2017 was the dramatic weakness of the US dollar. The US Dollar Index’s fall on Friday to 92.3 locked in a 9.7% decline for the year – the index’s worst performance in fourteen years.

Worse is yet to come for the dollar in 2018, according to Chris Gaffney, President of Everbank. Gaffney told the ABS-CBN network on Saturday that he expected “more headwinds” for the US currency despite market expectations for at least two hikes in US interest rates in the coming year.

“The Fed won’t be going it alone in terms of taking off gas from the stimulus pedal,” is Gaffney’s rationale.

Downbeat assessments of the dollar’s prospects in 2018 also come from the teams at Societe Generale and TD Securities.

“With global growth becoming more balanced…the dollar looks expensive,” a SocGen analyst said in early December.

“The macro landscape should favour a steady depreciation of the dollar in 2018,” said TDS.

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