Currency strength analysis of G10 currencies (YTD, MTD) 2020-Sep

Introduction

Since it is October from yesterday, I would like to make a monthly analysis of the strength of the G10 currency.
In this series of articles, I compare the currency strengths of the major currency group called “G10 Currency” at the beginning of each month for the year-to-date (YTD) and the previous month (MTD).

The previous article is as follows.
Currency strength analysis of G10 currencies (YTD, MTD) 2020-Aug
From the beginning of the year 2020, we can see that the order of currency strength is almost same order of grouping of "Current account is surplus or deficit" and "Resource country or not". However, we can see that AUD has outstanding performance. The Australian economy's trade surplus and current account surplus are expected to remain solid in the future as the Chinese economy recovers. Also, it has the highest policy interest rate of 0.25% among the advanced economies
crypto-currency.xyz
01.09.2020
The “G10 currency” has a different structure from the so-called “G10” (Financial Ministers and Central Bank Governors’ Meeting). The G10 currency is made up of the 10 major currencies: US dollar (USD), Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Australian dollar (AUD), NZ dollar (NZD), Canadian dollar (CAD), Swiss franc (CHF), Norwegian kroner (NOK), and Swedish kroner (SEK).

Currency strength analysis of G10 currencies (YTD: 2020)

(Please click to the chart to enlarge)

The order of currency strength from the beginning of the year in 2020 is as follows (from strongest to weakest).

  • CHF (brown)
  • EUR (red)
  • SEK (black)
  • JPY (light blue)
  • AUD (blue)
  • USD (Since it is a relative comparison target, it is not displayed.)
  • NZD (pink)
  • GBP (green)
  • CAD (purple)
  • NOK (gray)

The bold orange line means the US stock (S&P500).

In September, with the fall of US stocks from the beginning of the month, most currencies fell against USD, and it can be seen that the upward trend after the pandemic plunge was modulated and the adjustment phase continued.

NZD and GBP have risen significantly since last month, while SEK, NOK and AUD dollars have relatively fallen.

When analyzing currency vulnerabilities, there is a method of using the categories of currencies such as “Current account surplus or deficit“, “Non-resource country or resource country (natural resource-rich country)“, and “G10 currency or other currency“.

Since we are only targeting G10 currencies in this article, there are two classification axes: “whether the current account is surplus or deficit,” and “whether it is a non-resource country or a resource country.” It can be divided into the following 4 groups. Group 1 is the most vulnerable currency and Group 4 is the most vulnerable currency. (However, all currencies of the G10 currency are stronger than the currencies of other developing countries.)

Current account Natural Resource Currencies
Group. 1 Surplus Non-resource country JPY, EUR, CHF, SEK
Group. 2 Deficit Non-resource country GBP
Group. 3 Surplus Resource country AUD, NOK
Group. 4 Deficit Resource country NZD, CAD
In particular, the currencies of Group 1 current account surplus and non-resource countries, “JPY, EUR, CHF, SEK,” are relatively stronger than the current account deficit currency, USD, even if the market environment fluctuates in the short term. It’s good to keep that in mind.

Until last month, AUD showed the most outstanding performance after the pandemic plunge. AUD’s depreciation was relatively large in September, with all currencies depreciating against USD except JPY, but the performance of AUD from the beginning of the year is still higher.

Many major currencies have been higher against the US dollar since the beginning of the year after the volatility caused by the Covid-19 pandemic, while the NZD, GBP, CAD and NOK are lower than at the beginning of this year.

Currency strength analysis of G10 currencies (MTD: 2020-Sep)

(Please click to the chart to enlarge)

The order of currency strength in the single month of September 2020 (MTD) is as follows (from strongest to weakest).

  • JPY (light blue)
  • USD (Since it is a relative comparison target, it is not displayed.)
  • CHF (brown)
  • EUR (red)
  • CAD (purple)
  • NZD (pink)
  • AUD (blue)
  • SEK (black)
  • GBP (green)
  • NOK (gray)

All currencies other than JPY have fallen against USD in last month. However, at the end of the month, there are signs of a reversal rise as US stock market reversal.

I think the fact that only JPY was stronger than USD after all, even in the downward trend of stock market in September, is very critical.
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