Saturday, January 18, 2014

Currencies of natural resource exporters under pressure

Some of the largest natural resource exporters with floating exchange rates have seen their currencies come under significant pressure over the past year.

And it wasn't just the US dollar strength that was responsible for commodity producers' currency adjustments - the dollar (DXY index) is up only about 2% over the same period. Some of these countries clearly have other issues that prompted the currency selloff, but as a whole, it is the decline in demand for natural resources (the end of the "commodities super cycle") that precipitated this weakness. Of course much of this adjustment in demand is driven by slower economic expansion in China.
Bloomberg: - China’s factory output and investment growth probably weakened in December, adding to signs the world’s second-largest economy is losing momentum as analysts forecast 2014 expansion at the lowest in 24 years.

Industrial-production gains slowed to a five-month low of 9.8 percent and gross domestic product grew 7.6 percent from a year earlier in the October-December period, based on the median estimates of analysts before data due Jan. 20. Expansion will moderate to 7.4 percent this year as investment slows and overcapacity is squeezed, according to a survey last month.
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