Currency Exchange Week 2 January 2024.

By Chinedu Okoye 

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USD in 2024:

From a fundamental standpoint, the dollar is projected to be weaker this year, erasing some it's gains in 2023. Thus is as inflation data CPI and PPI continues to cool, setting the Federal Reserve up for a theoretical rate cut. 

The timing of the cut maybe misplaced as the labor market hasn't exactly cooled adding 216 thousand jobs in December 2023. 

DXY:

The dollar index rose a modest 0.03% in the week closing Friday January 12, at 102.170 it is 1.21% lower than a month ago, and 1.47% weaker than a year ago. This means that in the last month the US Dollar has sold off against a basket of currencies making up the dollar index, and is less bid than it was a year ago. 

The fundamental indicators point to a weaker Dollar assuming the Fed cuts in time as predicted by the markets, but there are other factors at play. 

1). Economic risks in other countries as private investment remains subdued and governments under market pressure to reduce deficits, have little room to spend. Private Investment was down 30% in China and 70% in Europe. 

2). Geo political tensions in the middle east could trigger a risk-off sentiment in the market where Gold and Treasury Bonds continue to rally, as well as the US Dollar. This is because the value trap in Asian markets where equities have potential upsides but also carry a lot of risks. 

3). Lower aggregate demand from a tapped out US consumer. 

Currency Pair Ranking Week 2: 

1). USD/RUB: -2.79%

2). USD/BRL: -0.49%

3). USD/INR: -0.39%

4). USD/ZAR: -0.28%

5). GBP/USD: +0.24%

6). EUR/USD: +0.03%

7). USD/CNY: +0.24%

8). USD/JPY: +0.24%

9). USD/CAD: 0.48%

10).AUD/USD: -0.49%

The USD v Majors:

EUR/USD: 1.0949

The Euro gained 0.03% against the dollar as the prior weeks loses were recouped leaving the currency pairs at $1.0949/€1. 

Zero Analytics still maintains a bullish sentiment on the pair, as data out of the US continue to point towards a soft landing and the Fed is expected to lead the cuts albeit a little bit later. 

GBP/USD: 1.2751

Ranked at No. 5, Sterling rose 0.24%, reversing last weeks loses. UK Mortgage applications are up as investors get a taste for real estate again. The Bank of England is not expected to raise rates this year and might cut later as the British economy faces unique inflationary factors that could change. 

Real wage was up 2.5% in October suggesting a strong UK consumer as well. I remain neutral on the pair going farther into Q1. 

USD/JPY: 144.93

The Dollar gainer 0.24% on the yen adding to its ains in the week prior. Although the Fed is expected to loosen it's monetary stance, the Bank of Japan is expected to tighten its, the dollar continues it's rise against the Japanese currency. 

We are neutral on the pair. 

AUD/USD: 0.6686

The Aussie dollar extended losses from week one and ended week two 0.49% lower. The pair is way below its 200 daily Moving Average and has broken through the 0.6703 key support level. 

We are currently neutral on the pair as we anticipate a modest comeback. 

USD/CAD: 1.3411

The Canadian Dollar is expected to continue trialing the US Dollar in the coming months leading to to the end of Q1. Although modest rises are possible we are generally bearish against the Canadian Dollar. 

USD v Core-BRICS:

USD/CNY: 7.1677

The Yuan was the only Core BRICS country that lost against the greenback in the week as the USD/CNY pair rose 0.24% to 7.1677. 

According to Micheal Celembaste's Report; "Pillow Talk" although China has offloaded a lot of USD denominated assets, it still holds a significant amount of them.

USD/INR: 82.8630

The Rupee has surprisingly been one of the most stable Core BRICS currencies behind the Real and the Ruble. After losing just 0.14% in week 1, the dollar  fell a further 0.39% in week 2 making it the third best performing currency against the Dollar in the ten currencies on the Zero Analytics watchlist. 

Our outlook remains neutral. 

USD/BRL: 4.8544

Perhaps the least volatile currency of the Core BRICS has been the Real. The dollar is down 0.49% on the week against the Brazilian currency, 2.25% on the month and 7.11% year-to-date. 

The outlook for Real is based on trade and commodity prices as nation is a major exporter of a broad range of commodities. 

USD/ZAR: 18.6208

The US dollar fell just under three-tenths of a percentage point against the South African Rand, as the currency stabilizes against the greenback. This leaves the month-on-month change at -1.76% headed into the third trading week of the year. 

 

The country's GDP is expected to grow by 1.4% in 2024 according to World Bank, and economists at Zero Analytics expect a modest drop and less volatilty for the pair. 

USD/RUB: 88.41

The strongest currency pair against the dollar so far in the year is the Ruble. This is expected as Russia more or less de-dollarized it's economy even as it supplies 10% of the worlds Oil and Gas. 

India and China have been the biggest buyers of Russian Crude, and only the Yuan fell modestly against the dollar in the second trading week of the year.