Today we revisit our monster G-10 charts to have a look at the lay of G10 currency land as this critical week gets under way.
Below we have a look at the G-10 currencies, each against an evenly weighted basket of the remainder of its G10 peers and indexed to 100 at 3500 days before the present, so a bit less than 10 years of data. The charts shows that the G3 currencies have been the weakest during this latest bout of strong risk appetite , with the USD and JPY slightly weaker than the EUR over the last week. Meanwhile, the usual suspects like the AUD and NZD have been rallying. It will be interesting to see whether profit taking in Aussie’s run sets in ahead of tonight’s RBA. For the longer term, those two currencies appear overvalued, particularly the Aussie.
Note: all charts are calculated from Bloomberg data. Click on the charts below to see them in full size.
USD The recent peak in the USD just barely edged above the previous one and this double top is the key resistance for establishing whether a full blow USD bull trend ever unfolds.
EUR The Euro has been weak broadly speaking over the last couple of weeks – with even the latest hopes of a new EU deal weighing on the currency against more traditionally pro-risk G10 currencies like AUD and the Scandies as it is assumed that any credible solution will mean vastly easier monetary policy from the ECB.
JPY
The recent behaviour of the JPY very similar to that of the USD, with the interest rate outlook critical. For the JPY to rally again and move to all-time highs, global worries on sovereign debt will need to remain dormant due to the country’s massive debt burden.
GBP Slowly and unconvincingly inching higher in recent months as it is clear that the BoE will keep the printing presses humming as long as the UK economy remains at risk. At what point to government bond investors rebel, however?
CHF So far, so good for the SNB’s interventionist policy – but the key test is how the currency fares on the next round of risk aversion. If the SNB stays aggressive and moves forward with the negative interest rate idea, the currency may continue to lose steam broadly
AUD Hard to believe that we are seeing the currency once again turning away from the brink on the latest bout of strong risk appetite. Yes, the sovereign picture looks admirable and the currency has the G10’s highest policy rate - but it is overvalued, the Australian housing bubble is unwinding and China’s economy and markets look shaky at the moment. Australia is possibly headed for a recession. How long can Aussie ignore the risks?
CAD CAD gets less respect than the other commodity currencies due to its low policy rate, the damage done to its current account in recent years due to the currency’s strength and its exposure to the US economy (though the latter is a head scratcher, as the US has been outperforming its major peers of late). So as the classic “inbetweener”, the currency looks too strong against the weakest currencies and far too weak against the strongest currencies like AUD and NZD.
NZD The kiwi is in largely the same boat as the Aussie, though a trend change appears to be under way now versus the rest of the G10 and data could begin weakening quickly after a post-earthquake rebuilding boom and rugby world cup preparation this year.
SEK SEK has gained some ground in recent days as the EU moves toward a deal and the world has perked up its ears as yields on long Swedish and Norwegian government bond yields have dropped below those of Germany. Still, further SEK strength will face headwinds from weakness in export markets and a possible unwind of the Swedish housing bubble.
NOK NOK has bounced far less against the G-10 on the recent risk rally as it is more credible as a safe haven currency (save for its poor liquidity). It will likely continue to exhibit a split personality going forward – with the curious combination of extreme sovereign credibility and extreme exposure to the wiles of energy markets. The sweet spot might be found for the currency in the event of a geopolitical crisis that sees oil prices spiking.
