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Range-trade making a comeback as global FX volatility falls


Global FX volatility has continued to fall in the past ten days, as has volatility in global equities, although emerging and commodity markets continue to see sharp price action.

Many major currencies have been largely directionless or are at levels where markets, faced with the herculean task of forecasting the economic damage stemming from national lockdowns, are seemingly struggling to paint a decisively bullish or bearish picture. The Australian Dollar, which has rallied sharply, probably falls in the latter category.

Figure 1: Global FX volatility has collapsed and is now only slightly higher than 10-year average

Global FX volatility has collapsed

Source: 4X Global research, BIS,

Note: Note: Basket weighted by currency-pair turnover in 2016; currency pairs versus US Dollar are AUD, CAD, CHF, DKK, EUR, GBP, JPY, NOK, NZD, SEK, ARS, BRL, CLP, COP, MXN, CZK, HUF, PLN, RON, RUB, ZAR, TRY, ILS, CNY, IDR, INR, KRW, MYR, PHP, SGD, TWD and THB.

Our measure of global realized FX volatility has fallen sharply and is now only slightly higher than its 10-year average (see Figure 1). The VIX index of S&P500 equity volatility has more than halved in the past month to around 40 from a 12-high year of 85.

There are still many unanswered questions about the efficacy of monetary easing, liquidity enhancing and fiscal stimulus measures, including about their impact on the supply of and demand for Dollars. However, the narrative has evolved in the past month. Markets are now increasingly focused on quantifying the collapse in global GDP growth in the first half of the year and on forecasting the timing of an easing in national lockdowns and shape of the subsequent recovery in global output and demand. Macro data releases, which until recently had taken back stage, are once again under scrutiny as March and April figures become available (see National economic recessions – The price to pay, 13th April 2020).

Figure 2: Central banks’ monetary and liquidity measures have helped stall the Dollar’s sharp ascent

Central banks’ monetary and liquidity measures have helped stall the Dollar’s sharp ascent

Source: 4X Global research, Federal Reserve,

Note: * Dollar versus basket of United States’ major trading partners (Federal Reserve weights); ** Dollar versus weighted average of Euro, Yen, Sterling, Canadian Dollar, Swedish Krone and Swiss Franc.

In the process, seismic daily currency moves have given way to a range-bound US Dollar in the past fortnight (see Figure 1), with a number of major currencies currently trading broadly in the middle of comparatively narrow ranges (see Figure 2). These include the Swiss Franc, Canadian Dollar and Sterling, as well as the Singapore Dollar, Chilean Peso and Polish Zloty. The EUR/USD cross is near the bottom of an admittedly narrow range, with the number of covid19 numbers cases and deaths (and associated lockdowns) in major European economies (France, Italy and Spain) still acting as a key headwind to the Euro, in our view.

There have of course been some notable exceptions. High-yielding emerging market currencies, as often historically the case, have continued to trade in wider ranges than their developed market counterparts. The Indonesian Rupiah and Turkish Lira have had deeply contrasting fortunes, with the latter up 6.1% against the Dollar in the past fortnight and the former down 3.2%.

Moreover, still elevated daily volatility in currencies of oil-exporting nations (Norwegian Krone, Colombian Peso), unsurprising given wild gyrations in the price of crude oil, has stretched these currencies’ ranges versus the Dollar. USD/NOK has still managed to recently gravitate near the middle of its 2-week range.

Figure 3: Many developed market currencies have been trading in reasonably narrow ranges so far in April

Many developed market currencies have been trading in reasonably narrow ranges so far in April

Source: 4X Global research,

Finally, the Australian Dollar stands out for its remarkable appreciation in the past week – 5.5% versus the Dollar and 4.9% in NEER terms – which we attribute to at least three factors: i) attractive valuation levels which have contributed to net speculative short positions being slowly unwound (see Figure 4); ii) the rebound in Chinese imports in March and (expected) positive impact of on Australian external trade (35% of its merchandise exports go to China); and iii) resilient domestic macro data in March (including the surprising, although admittedly very small, rise in total Australian employment).

However, the Australian Dollar seems to have run out of steam at this juncture and we would expect markets to turn their attention to the next “under-valued” currency backed by relatively stronger fundamentals (with the emphasis on relatively). This will be the topic of our next FX Report.

Figure 4: Australian Dollar has rebounded 5% in past fortnight but may have run out of steam for now

Australian Dollar has rebounded 5% in past fortnight but may have run out of steam for now

Source: 4X Global Research, BIS, Commodity Futures Trading Commission,

Note: * Long positions minus short positions;  **NEER is Nominal Effective Exchange Rate

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. Make sure you do your own research or consult a professional advisor.

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