Currency Exchange: Week 1 January 2024.

By Chinedu Okoye 

USD across Time-frames:

In 2023,the US Dollar gained exponentially against major currencies as well as Core BRICS nations (Brazil BRL, Russia RUB, India INR, China CNY and South Africa ZAR). 

Below is a chart compiled by Zero Analytics using real time data sources, showing 1 week (w-o-w), 1 month (m-o-m) and 1 year (y-o-y) USD moves against the 10 currency pairs chosen, the Japanese Yen, Canadian Dollar, Euro, Pound and the Australian Dollar in addition to the above. 

Periodic Moves and Themes:

The one week moves have a common theme as the Greenback gained in the first week of the year against every currency but the Indian Rupee (INR) as USD/INR pair dropped 0.14%. The weekly theme is in stark contrast to the monthly numbers showing the US dollar falling against all 10 currencies covered. 

A similar theme is shown in the yearly (y-o-y) figures, as mixed data and Fed policy and statements in the first half of 2023, reinforced rationales for long dollar trades. However, with the data and Fed commentary coming out of 2023, the USD could experience a totally different year in contrast. 

Fundamentals behind a weaker Dollar:

The Federal reserve is expected to cut rates at least twice and this has been priced into the markets as given by Treasury (bond), Gold (commodity), Stocks (equity) and to some extent Crypto markets. 

A weaker dollar is in order so long as the Fed cuts and/or doesn't hold for longer, and that there is no recession. 

In that scenario, the declines seen in the last month of 2023, as the Fed is expected to lead the rate cuts as the did the rate hikes almost 3 years ago. 

USD v Majors:

USD/JPY:

The Bank of Japan would most likely exit it's current restrictive monetary policy allowing the 10 year yield to rise above 1% and possibly raise interest rates to tame inflation. It is fair to have a bearish bias, whilst being watchful of this currency pair. 

Sitting above it's 200, 100, and 50 Moving Average (MA), and closing within the range of its 5 and 10 day MAs, the pair is set to break below the 144.0 support level it found last week or breach the 145 level in the coming weeks. This makes for a Neutral stance on this pair. 

EUR/USD: 

The European Central Bank (ECB) is expected to cut but not by as much as the Fed or as early. Barring a recession or an economic contraction in Europe, the Euro could hold against the USD above 1.0879 critical support level as per Zero Analytics estimation. 

Closing at 1.0942, the Euro lost 0.92% against the dollar, but gained 1.36% in the month and 2.24% on the year. EUR/USD is higher than its 5, 10, 20, 50, 100 and 200 day simple moving averages. The 200 day MA is 5 points behind the 5 & 10 day MA in a seemingly bullish signal for the Euro. 

GBP/USD: 

The Pound last the least against the US Dollar in the week, dropping 0.10% to 1.2718, if monetary policy expectations hold, the pound could stay strong throughout the rest of the month or add modestly in the coming weeks, but a sideways movement is expected. 

AUD/USD:

The Australian Dollar has been less volatile than the Yen, and has gained the most month-on-month to January 5, 2024 rising 2.43% to close Friday's session at 0.6713/$1. AUD/USD sits just below the 5, 10, 20 and 50 day Moving Averages. 

Commodities price increases would be bullish for AUD as will the Federal Reserve rate cuts fully anticipated against a possibly longer hold by the Reserve Bank of Australia. Traders should therefore watch commodity prices and press releases that could influence monetary policy. 

At Zero Analytics we are bearish on the pair in the coming weeks and possibly the Quarter. 

USD/CAD:

The US Dollar gained a modest 0.88% in the week against the Canadian Dollar to close at CAD 1.3364/$1 that figure represents a 1.68% month-on-month decline and a 1.38% decline from a year before. 

USD/CAD sit above it's 5 day Moving Average, equal on the 10 and 20 day MA, and higher than its 100 and 200 daily moving averages. The line up of its technical indicators would suggest a bullish trend going into the remainder of January and possibly Q1 2024. 

USD v Core BRICS:

The de-dollarization campaign which intensified last year with the alliance addiing more members as well to include; the United Arab Emirates, Saudi Arabia, Iran, Ethiopia and Egypt. Five more countries are expected to be added this year. 

As a result, Zero Analytics resolved to monitoring the moves in the value of the greenback against these currencies. From the table we can see that the Dollar outperformed all five countries in the year with the Yuan and Rupee least changed from a year ago. 

The Indian Rupee and the Chinese Yuan appear to be the more stable and less volatile of the five currencies. With the Rupee gaining in the past week the only country in the group of 10 selected as the USD/INR pair fell 0.14% in the first trading week of 2024. 

The Dollar gained 0.46% against the Yuan in the week, on the back of a modest month-on-month 0.04% drop. The dollar still posts higher yearly gains against the Yuan than it does against the Rupee. 

The second lowest drop against the dollar amongst the group of five BRICS Currencies, is the Brazilian Real (BRL). USD/BRL rose 0.44% to 4.8749/$1 in the week. The USD gained the most against the South African Rand (ZAR) on the week, rising 1.58% to 18.6834. No currency in the group weakend against the dollar as much as the Russian Ruble. 

Dollar (USD), Yuan (CNY) and USD/CNY in 2024:

Bets against the Dollar hinges on an early rate cut or indication of one in the Federal Reserves' Q1 press statements. A longer than anticipated wait could reignite a bull run on the Greenback against majors. 

The Yuan is expected to be the most stable Core BRICS currency against the US dollar this year and a rate cut by the Fed could even strengthen the position of the Remninbi against the dollar. The Ruble could stabilize as Russia completely de-dollarizes it's economic relations. In any case, it will be heavily reliant on the Yuan.