Exotic and Commodity Currencies down ahead of FOMC – 14th December 2015

A 1.25% daily decline in the value of a currency during a 5-stint as South Africa’s finance minister won’t look good on the CV of David Van Rooyen. To make matters worse for Mr Van Rooyen, the Rand has strengthened by 5% since his dismissal. The strengthening post his departure suggests investors have rather more time for his replacement, Pravin Gordhan, not least because when he held down the same job between 2009 and 2014 he made a decent fist of it. Over the weekend then, the Rand was the top performing currency however, despite it’s recovery this morning it would be ambitious to expect the Rand to carry on higher when US interest rates move higher.

The weekend’s back marker is another exotic currency, the Chinese Yuan, which has been marked down to a four-year low against the US Dollar. The authorities in Beijing have announced that they will in future allow it to track a basket of currencies rather than linking it only to the US Dollar. It is not clear whether or not this is a step towards liberating the Yuan to float freely but, either way, it probably means further weakening.

There is little doubt that investors are becoming twitchy ahead of this Wednesday’s expected interest rate increase by the US Federal Reserve. Global equity prices are mostly lower on the week, oil prices are at seven-year lows and gold is close to a four-year low. The commodity dollars also fared badly on Friday with the Australian, Canadian and NZ dollars are all down by 1.0% from their positions on Friday morning

There are no significant economic statistics on today’s agenda. That will leave more than enough time for investors to speculate about Wednesday’s Federal Reserve rate decision and how it will affect currency markets.

One school of thought is that a 25-basis-point increase in the Federal Funds rate is already priced into exchange rates.