Currency volatility during the COVID-19 outbreak
The outbreak of the COVID-19 pandemic has been unprecedented, and its impact to world markets has been reflected in foreign exchange. The impact of COVID-19 touches every part of the economy, and can largely be divided into three categories:
1. Demand Shock, as quarantines, travel restrictions, and global disruption have thrown a stick in the spokes of consumer goods & services, tourism, hospitality, and more.
2. Supply Shock, as the complex, global supply chains that make the world go ‘round are continuously disrupted and halted without a clear resolution point.
3. Financial Shock, as lack of cash flow and liquidity threaten to sink enterprises in an economic environment where the global financial safety net is strained and international cooperation is in declining health.
Below are summaries of the month’s rate changes over 3.5% taken from our review last week. For up-to-date figures, please reach out to your client engagement representative or click here to reach our inquiries team now.
Access the December 23rd update of this article to see our most recent data, accompanied by a review of 2020 and expectations for 2021.
Currencies Losing Value against the USD
MXN – Mexican Peso:
The value of the Mexican peso is at an all-time low amid global COVID-19 uncertainty, exacerbated by global oil price volatility amid failed OPEC+ talks in early March. The inability of OPEC+ parties to agree on whether to cut production prompted retaliatory actions between Russia and Saudi Arabia that washed over the global market. Mexico’s central bank, Banxico, stepped in to slow depreciation but has limited mitigation options in the current market. The currency remains under pressure as investors are pulling money from emerging markets.
COP – Colombian Peso:
The Colombian peso’s fall is attributed to global COVID-19 uncertainty as well as the poor outlook for global energy markets.
RUB – Russian Ruble:
The value of the Russian ruble has fallen amid global COVID-19 uncertainty, as well as the global oil price volatility amid failed OPEC+ talks in early March, which set off a price war between Russia and Saudi Arabia. The Central Bank is increasing its sales of foreign currencies and the government has pledged support to oil companies, both in hopes that it will stabilize the currency.
UYU – Uruguayan Peso:
Like other peers in Latin America, the Uruguayan peso has faced depreciation due to global COVID-19 uncertainty and sell-off of emerging market currencies.
BRL – Brazilian Real:
Brazil’s real began feeling the impacts of COVID-19 earlier than many others, falling 4.2% in our last rate period. Investors have only become more risk-averse in the time since. The coronavirus outbreak in China has led to falling commodity prices and slowed investment in emerging markets. In Brazil, these market conditions and domestic pressures including cuts to benchmark interest rates have led to a weakened real.
ZAR, NAD, SZL, LSL – South African Rand and pegged currencies:
Last month, the South African rand and its pegged currencies fell 3.8%, but mainly due to domestic worries, and the COVID-19 pandemic couldn’t have come at a worse time. While the direct impact of outbreaks in Africa is mostly in the early stages, the economic impact and global emerging market sell-off are intensifying South Africa’s debt problems. The South African Reserve Bank has cut key interest rates multiple times over the past year in response to poor economic conditions, but the current challenges led them to make their largest cut in over 10 years, from 6.25% to 5.25%.
SDG – Sudanese Pound:
The current global COVID-19 pandemic has contributed to continued depreciation for Sudan’s pound. The currency fell 12% last rate period. Protracted instability in Sudan has continued to widen the trade imbalance in the country, with imports totaling $3B more than exports. There is high demand for dollars.
ZMW – Zambian Kwacha:
The Zambian kwacha has reached all-time lows. There is low supply and high demand for U.S. dollars and low investment amid global uncertainty.
KZT – Kazakhstani Tenge:
As Central Asia’s biggest oil producer, the volatility of global energy markets has had a large impact on Kazakhstan’s tenge. The central bank announced this week that it would cease attempts to shore up the currency, as attempts in early March proved futile.
IDR – Indonesian Rupiah:
Depreciation has brought the Indonesian rupiah to its lowest point in over a year. Foreign investors have dumped high levels of rupiah bonds, the Indonesia Stock Exchange has seen major value loss and multiple trading halts, and the market has expressed increasing worry over a lack of sufficient budget allocation to handle the COVID-19 outbreak.
NOK – Norwegian Krone:
Like Brazil's real, the Norwegian krone began to see the impact of the current crises in our last rate period, when it dropped 4.1%. The Norwegian krone is closely tied to commodity pricing as the majority of their exports are tied to the oil and gas sector. The global impacts of the Coronavirus outbreak on the price of oil and further volatility caused by the early March OPEC+ talks have continued negative speculation.
CLP – Chilean Peso:
Earlier this year, falling copper prices hurt the Chilean peso’s value. The global outbreak of COVID-19 has sparked an emerging market sell-off, contributing to the continued fall of the CLP to an all-time low.
AUD – Australian Dollar:
The Australian dollar reached a yearly low as the speculation of lower relative strength of the currency amid the COVID-19 pandemic fueled negativity. Yesterday, the currency recovered slightly as the Reserve Bank of Australia released a collection of measures hoped to support the economy.
BYN – Belarusian Ruble:
Belarus has also felt the global impact of the COVID-19 pandemic. The Belarusian ruble is closely tied to the Russian ruble, which fell 11.3% during this rate period.
ILS – Israeli Shekel:
The depreciation of the Israeli shekel is its highest one-month drop in over ten years. The currency depreciated heavily as the global financial markets reeled amid the uncertainty of the COVID-19 pandemic. While market upheaval did cause a quick drop of value, Israel’s central bank has high reserves of foreign currency, particularly U.S. dollars, which can be used to combat downward pressures and temper inflation.
UAH – Ukrainian Hryvnia:
Falling markets, uncertain outlooks, global COVID-19 panic, and high demand for USD have caused depreciation of the Ukrainian hyrvnia. The National Bank of Ukraine [NBU] is in better shape than in past years, but quarantines delayed their ability to obtain physical USD and euros from abroad. The NBU has stated that they have enough reserves to temper currency fluctuations, and that they have no plans for currency restrictions.
NZD – New Zealand Dollar:
Just like neighbor Australia, the New Zealand dollar has depreciated under global pressure, leading to déjà vu of the collapse of the currency during the global financial crisis. The COVID-19 impact to tourism, business, and sports will have a major impact, but there is positivity that despite disruption, import and export will continue and the global banking system is in a better position than in 2008-2009.
ISK – Icelandic Krona:
The global tourism industry is no match for the scale of the COVID-19 pandemic, and for an economy that relies heavily on the industry, currency depreciation is a predictable outcome. During the past several weeks, the Central Bank of Iceland has sold about 8 billion kronas' worth of foreign reserves in an attempt to slow and smooth exchange volatility. The bank’s Chief Economist, Thórarinn G. Pétursson, suggested that reduced domestic demand during the outbreak could partially offset inflationary pressure.
TRY – Turkish Lira:
Not one to be left out in times of trouble, the Turkish lira has also been dealt a rough hand in the current COVID-19 crisis, as the slow return of their tourism industry has been halted in its tracks. While the Turkish lira has performed well beside other emerging market currencies, it appears on track for continued volatility.
Currencies Gaining Value against the USD:
MMK – Burmese Kyat:
COVID-19 is creating havoc in Myanmar’s economy. Tourism has come to a halt, the supply chain for the garment industry is disrupted by decreased output at Chinese factories, and border closures have hurt exports—a large majority of which are typically purchased by China. So why is the kyat appreciating? While the crisis in other countries has spurred demand for U.S. dollars, in Myanmar it has resulted in less demand due to reduced import/export activities. In early March, the Central Bank held currency auctions to temper the currency’s appreciation. This led to a brief bounce back, but the currency continues on a trend of appreciation.
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