The dollar got a big blow from the more dovish tone heard from Yellen and her colleagues, with the dot chart standing out as a sign that rate hikes will be delayed, or at least sporadic rather than systematic.
But in the morning after, other currencies had a serious hangover. Why? They cannot really stand on their own. Here is a list of 7 weaker currencies than the dollar. These are all its major peers in the developed world – no esoteric currency is on the list:
- EUR: The ECB is going all-in on Quantitative Easing. The massive program is going on as planned. But wait, economic indicators are improving in the euro-zone and forecasts are higher. So, isn’t policy about to reverse? No. Not at all. Draghi made it clear that reaching the goals depends on full implementation of QE.
- JPY: Dollar/yen has been stable of late and the BOJ’s easing is not news. However, this may not be the end. Slow growth and low inflation still leave the option of even more monetary stimulus from the BOJ open, as soon as April.
- AUD: The RBA cut the rates once in February and paused in March. However, they have laid down heavy hints of more easing in April or in May. But what about housing in Sydney? Stevens and co. have opened the door to macro prudential tools (used successfully in the UK and New Zealand) and that could allow for lower rates.
- CAD: Canada cut rates once in January, shocking markets, but paused afterwards, seeming optimistic. But if the US economic growth is “moderating”, Canada enjoys less demand. In addition, the renewed fall in oil prices does not bode well for the loonie.
- GBP: Wasn’t the BOE expected to hike alongside the Fed? Slower wage growth and worries about the strength of sterling mean that Carney and co. are patient as well. Some even suggest more stimulus.
- CHF: Maybe the Swiss franc can continue appreciating after the SNBomb surge? It is a safe haven after all. Not so fast. The SNB continues intervening in markets and will not let the franc jump like that once again.
- NZD: Perhaps the only currency that enjoys a mildly more hawkish central bank. Yet also in New Zealand, the central bank is only happy when the kiwi is down and out. Any rise of NZD will probably be met with jawboning if not outright intervention. This already happened in the past.
So, while a strong USD slows export growth, the US will probably have to accept a stronger currency, which goes hand in hand with stronger economy – an economy which is inwards facing rather than export oriented like the vast majority of its developed world peers.
What do you think?
More: Fed’s Patient In Deed, If Not Word; USD On Their Mind – BofA Merrill
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