Dateline July 14

July 14, 2013

On this Bastille Day, twenty eight weeks into 2013, my main takeaway from the foreign exchange markets thus far is the isolation of key currency pairs from the volatility of bonds and stocks.  Dollar values against the euro and Swissie are just 0.4% and 0.9% from their year-to-date averages.  The distance from the yearly averages are just 2.1% in the case of the loonie, 2.0% for sterling and 3.6% in the yen’s instance. 

The same can not be said of the currencies of emerging markets and commodity-sensitive monies.  The New Zealand dollar has traded in a 17.8% high-low band between USD 0.8677 and 0.7684 and presently is quoted 11.3% away from its year-to-date average level of 0.8245.  The Aussie dollar has fluctuated in a 12.9% range and is some 6% from its 2013 center of gravity.

The contrasting behavior between key developed currency relationships and the movement of second-tier currencies suggests that global developments have this year exerted more influence over the currency markets than the national fundamentals.  This is so because emerging market currencies and those affected by commodity swings tend to be more keenly influenced by global drivers.  Even the increasingly stark difference between Fed policy and that of the ECB and BOJ has failed to deliver a cumulating trend among the dollar, yen, and euro relationships.  If not under present circumstances, when?

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.


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