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Conservative FX markets testing (some) extremes


We argued in our last article (20th April) that the currency range-trade was making a comeback. In the past 13 trading sessions most developed and emerging market (EM) currencies, including the majority of Asian currencies, the Euro and Sterling, have continued to trade in narrow ranges versus the US Dollar and/or appreciated/depreciated only very modestly (circled in red in Figure 1). Markets grappling with the release of increasingly weak and time-relevant macro data, fluid covid-19 related figures and national government lockdowns and the likely future shape of domestic and global GDP growth rates have on the whole seemingly opted for a conservative approach.

Figure 1: Majority of currencies have range-traded vs Dollar and/or appreciated/depreciated only modestly

Euro and Sterling have continued to trade in narrow ranges versus the US Dollar

Source: 4X Global Research, Federal Reserve,

Note: *USD NEER is Dollar Nominal Effective Exchange Rate

  • Figure 2 shows that 24 of 32 major currencies have traded in a range of less than 3.5% versus the US Dollar since 20th April, according to our estimates.
  • The five narrowest ranges (<1.5%) have all been recorded by Asian currencies – the Chinese Renminbi, Thai Baht, Taiwan Dollar, Philippines Peso and Singapore Dollar. We attribute this to the willingness and ability of Asian central banks to keep their currencies broadly aligned with the currencies of their main trading partners – namely the Chinese Renminbi and US Dollar which have been particularly stable recently – by intervening in the FX market to cap currency moves.

Figure 2: Narrow ranges versus the Dollar but nine of these currencies at or near the extremes

Source: 4X Global Research, Federal Reserve,

  • Only eight currencies – the Australian Dollar and seven EM and/or oil currencies – have traded in a range of more than 3.5% versus the US Dollar since 20th
  • We estimate that 28 of these 32 major currencies have depreciated or appreciated by 2% or less against the US Dollar (see Figure 3). Notably the EUR/USD and GBP/USD crosses are only marginally weaker than they were nearly three weeks ago and the Dollar NEER has been broadly unchanged.
  • Only two currencies have appreciated by more than 2% versus the Dollar since 20th April – the Colombian Peso (oil currency) and Indonesian Rupiah. Other oil currencies (Russian Rouble, Norwegian Krone) have on the whole outperformed, unsurprisingly given the 80% rise in the price of Brent crude oil since a 21-year low of $16.3/barrel on 22nd

Figure 3: Only four currencies, all emerging market currencies, have moved more than 2% versus Dollar

28 of these 32 major currencies have depreciated or appreciated by 2% or less against the US Dollar

Source: 4X Global Research, Federal Reserve,

Note: *USD NEER is Dollar Nominal Effective Exchange Rate

Nine major currencies are testing the extremes of their recent ranges

However, nine of the 32 major currencies tracked are currently at or testing the extremes of their admittedly (in most cases) narrow ranges versus the US Dollar (see Figure 2). Near-term we see downside risks to the Chinese Renminbi and Brazilian Real versus the US Dollar and Swiss Franc.

  • The high-yielding Argentine Peso, Brazil Real and Turkish Lira and the Chinese Renminbi, Euro, Polish Zloty and “safe-haven” Swiss Franc are at or near the weakest point of their trading ranges, with the USD/TRY cross at a record-high and the USD/BRL cross not far off (the difference being that the Lira’s pace of depreciation has been more modest than the Real’s).
  • Conversely, only the Japanese Yen is at or near the strongest point of its range.

Chinese Renminbi prone to weakness if US-China trade war flares up again

The People’s Bank of China (PBoC) has kept the Renminbi NEER on a tight leash for the past five weeks by fixing the USD/CNY central parity rate accordingly (see Figure 4). However, based on precedent, a resumption of the trade war with the United States would likely result in Chinese policy-makers retaliating by weakening the Renminbi, in our view. In the past week US President Trump has seemingly tried to shift the narrative towards restarting the US economy and China’s involvement in the covid-19 pandemic and its adherence to the trade deal it signed with the US in January. The US administration will conduct the latter’s assessment within the next fortnight, reviving the threat of higher import tariffs and a resumption of a trade war with China which lasted two years.

Figure 4: PBoC has kept Renminbi broadly stable against Dollar and in NEER terms…but will this last?

Source: 4X Global Research, BIS, CFTES,

Brazilian Real – Risk biased towards further weakness

The Brazilian Real is only about 0.3% from its record low versus the Dollar (hit on 24th April) and in NEER terms is at a multi-decade low according to our estimates. However, we think the domestic factors behind the Real’s ongoing slide – including President Bolsanaro’s continued “hands-off” approach to the covid-19 pandemic, the recent departures of high-profile government officials, the central bank’s 75bp rate cut to a record-low of 3% and pressure on already weak economic growth and fiscal balance –will continue to weigh on the Brazilian Real near-term.

Swiss Franc – Scope for rebound in “risk-off” environment

The “safe-haven” Swiss Franc has underperformed most currencies since 20th April (see Figure 3). It has scope to outperform, in our view, should global risk appetite weaken again in the event of a resumption of the US-China trade war and/or if national lockdowns are only eased very gradually (or not at all) and global demand and output fails to recover, even slowly. From a relative value-perspective note that the Swiss Franc is at its weakest level versus the Japanese Yen – another “safe-haven” currency – in nearly a year.

For further information about 4X Global Research or to discuss a subscription to its research products and services, please email odesbarres@4XGR or call Olivier Desbarres on +44 (0)20 3811 0454

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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