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Ahead of major announcements in the coming days, investors were in surprisingly good spirits on Wednesday, indicated by a stronger New Zealand dollar, won, rupee and a faltering yen.
Weakness in Asia-Pac FX would have been forgiven ahead of Thursday’s announcements by the FOMC (Wednesday in the US and Europe), Bank of England and Donald Trump, who announces his decision on the next Federal Reserve Chair; not to mention Friday’s US payrolls data.
The South African rand continued its recovery on Tuesday, strengthening to levels close to 14.0 per dollar, following last week’s budget-induced tumble.
USD/ZAR had climbed as high as 14.35 on Friday – the rand’s weakest level against the dollar in eleven months – as investors dumped South African assets in response to last week’s mid-term budget which exposed the country’s struggles with sluggish growth, falling tax revenues, rising national debt and high unemployment.
The Russian ruble has been one of the most volatile emerging market currencies in recent years, and it ended this trading week in much the same way. On Friday, USD/RUB’s high-low range ran close to 1.1 rubles, marking the Russian currency’s most volatile session since July.
Yesterday’s excitement in USD/RUB was largely the result of the meeting of Russia’s central bank, at which the one-week interest rate was lowered to 8.25%, from 8.5%.
Currencies in the Asia-Pacific region made sweeping gains against the euro on Thursday night after the European Central Bank announced a cautious approach to the removal of monetary stimulus.
Further to a zero percent interest rate, the ECB is currently buying €60 billion worth of assets (bonds) each month, with the goal of keeping eurozone borrowing rates extremely low.
The South Korean won climbed to a seven-week high against the dollar on Wednesday (a USD/KRW low) of 1123.3 after third-quarter GDP data showed South Korea’s economy growing at its fastest pace in seven years. Third-quarter growth of 1.4% was well above the median estimate of 1.0% and an improvement on second-quarter expansion of 0.6%.
The hearts of those holding Philippine pesos were broken on Tuesday after the currency slipped to its weakest level against the dollar in more than eleven years. The peso weakened by 33 centavos to 51.85 per dollar.
The peso wasn’t alone in falling against the dollar; most Asia-Pac currencies did the same as the greenback shrugged off more Republican disharmony – seen as a potential obstacle to US tax reforms – late in the New York session.
As reported on Friday, the Canadian dollar ended last week with its largest one-day drop against the US dollar since January following disappointing economic data. The data signalled to markets that the Bank of Canada would hold steady on interest rates – currently at 1.0% – at its meeting on Wednesday, and the probability implied from derivatives markets of a quarter-point hike by the bank fell to just 19%.
Shinzo Abe’s Liberal Democratic Party was the decisive winner in this weekend’s Japanese election, paving the way for a continuation of “Abenomics” and extremely loose monetary policy in the world’s third largest economy. Consequently, the Japanese yen weakened on Monday to levels above 114 per dollar for the first time since July.