Understanding currency changes is vital to sizing ITC markets in multiple countries. In this post I look at the changes in value against the US Dollar, which I use as the standard measurement for the world market. I am grateful to OANDA, which gives historical rates and from which I take daily weighted average rates for each quarter.
In my charts I split currencies by the percentage change the values have against the dollar into three groups. In my Figure above I show those currencies which have gained, or stayed level in value in the third quarter.
The ‘best’ performing currencies in the quarter were the Egyptian Pound, the Ukrainian Hryvnia and the Thai Baht. Of these the performance of the baht is most significant as both Egypt and the Ukraine are in the process of recovering from significant falls in value in recent quarters, most probably associated with social, economic and political events. Strong quarterly changes in currency values are also likely to continue in these countries, while in Thailand things are likely to remain more stable. Thailand is still a major manufacturing location for disk drives, which have gone through a period of strong demand over the last couple of years; a stronger currency may make these components more expensive for those suppliers who are too small to hedge currency values.
Of the other currencies it’s worth noting that the Swiss Franc has done better than any other European currency and that Hong Kong has done particularly well given the frequency and depth of the democracy protests going on there.
Those currencies that lost a little value in the quarter are shown in the Figure above. Among them are the Russian Rouble and Chinese Yuan Renminbi.
Russia, China and the European Union (whose currency decline by 3.8% against the $US in the third quarter) are significant countries for purchasing and – in the case of China – manufacturing ITC products. Russia has seen much wider variations in the value of its currency than either China or the EU since the Credit Crunch of 2008-9, partially due to political instability and a growing animosity from Western democracies. The Yuan Renminbi in particular has changed little since the Chinese authorities decided to move away from parity with the Dollar in 2005; recent declines are partially connected to the trade wars initiated by President Trump, which has slowed the massive growth in manufacturing somewhat (although Asia in general – and China in particular – is still growing in its share of global ITC manufacturing).
Those currencies that lost most value against the $US are shown in the Figure above.
The currencies that lost the most value against the dollar in the third quarter were Argentinian Peso, Venezualian Boliva Furte and Pakistanian Rupee. The two South American countries have severe economic problems and rampant inflation – made worse in Venezuala by economic sanctions implemented by the US, while Pakistan secured a $6 billion loan from the IMF earlier this year to help with its growing inflation and unemployment.
Of the three currencies the Rupee should be easier for its government to stabilise in coming quarters.
Some say we live in a ‘post truth’ world, but the value of a nation’s currency is one pointer to the success of the economy. Taking the UK pound as an example we can see two major changes in the period since 1998 (see my Figure above). One was at the time of the Credit crunch in 2008-9 when the (then) Labour government managed to avoid recession by a massive and deliberate devaluation from which the country partially recovered. The same is not true of the effects of the referendum on EU membership, in which the country decided to leave in June 2015. Since then the value of the pound has declined by more than the ‘short sharp shock’ after the Credit Crunch… and shows no signs of ever recovering to its previous level any time soon. It wouldn’t take much now for the UK economy to be overtaken by France as the fifth largest in the world.
Of course this post is written on the assumption that the $US is the prime currency used by the ITC industry. The picture would appear slightly worse and different if the centre of the market shifted to the Yuan Renmimbi or Euro.