The threat of a proxy war between the US and Iran in Iraq has pared back some of the recent gains of "risk-on" currencies.
The US dollar held its value in 2019 despite a serious escalation in US-China trade tensions, mainly because the greenback is still considered a safer currency to own than most others.
Increased geo-political risk after the US Air strike on Iran, killing a key figure in the regional attacks against US interests has increased currency market volatility early in the new year while oil prices are surging and gold hits a 7-year high.
The threat of proxy war between the US and Iran in Iraq has pared back some of the recent gains of “risk-on” currencies such as the Australian, Canadian and Kiwi dollars and helped safe haven currencies such as the Japanese yen and US dollar plus currencies pegged to the greenback such as the Hong Kong dollar.
The Australian dollar started the new year nicely climbing to multi-month highs helped along by the cooling of trade tensions between the United States and China and New Year optimism for global economic growth in the year ahead.
Against the US dollar, the Aussie dollar has risen over 5 per cent since early October, leaving it above 70 cents in the first days of the new decade for the first time since late July.
However the Aussie economy is facing tough times apart from the impact of the bushfires on the economy, the household sector was slow last year as sluggish wage growth sapped confidence.
Eighteen of 22 economists polled by Bloomberg forecast the RBA will cut Australia’s cash rate to 0.5 per cent when it meets on February 4.
The Canadian dollar had a good year, starting the year at US73¢ and steadily improving to US77¢ by year end for a 5% increase against the greenback.
The loonie has benefited in recent weeks from an easing of the U.S.-China trade tensions and signs of recovery in the global economy.
2019 was a tough year for the the single currency however the Euro finished 2019 strongly with EUR/USD breaking back above 1.12 on Jan 2nd for the first time since August.
Sterling has begun the new decade on the back foot as economists play down the currency’s 2020 prospects with predictions of some tortuous months of trade negotiations with the EU.
In the post UK election euphoria GBP/USD rose to over 1.33 and GBP/EUR to 1.20 however GBP rates have since dropped back over the uncertainty of what sort of trade deal the UK can realistically negotiate with Europe over the next 11 months.
Against the euro the pound rose 6.3 per cent last year, its first annual rise against Europe’s single currency since 2015 and its biggest since 2014.
The Kiwi dollar had a great last quarter in 2019, NZD/USD rose close to 10% for the last three months of the year finishing over US67¢ on Jan 2nd before the situation in Iraq ended the run.