Nominal Effective Exchange Rate seasonality November & December update
This report updates the monthly seasonal patterns of 32 major Nominal Effective Exchange Rates (NEERs) going back to May 2010, using over 90,000 daily data points with trade-weights derived from the BIS (April 2019) and national central banks (see Nominal Effective Exchange Rates: Monthly seasonal patterns, 10 January 2019).
A number of factors can drive currency seasonality, including underlying seasonal patterns in balance of payment flows, the timing of public holidays and market liquidity. However, major domestic or international events (e.g. Brexit) or significant changes in central bank or government policy can break down even well established seasonal currency patterns.
Based on average (rather than month-end) data, monthly NEER seasonality in the past nine years has been very low in low-yielding Non-Japan Asian currencies, EUR and ROL and elevated in high-yielding emerging market currencies and to a lesser extent JPY.
In December, seasonality has been modest with a few exceptions. CHF and NZD have been the strongest currencies, appreciating on average by 0.7% mom and 0.6% mom respectively but this equates to less than one standard deviation. SEK, ZAR and PHP have appreciated respectively 0.5%, 0.5% and 0.3%, or by just over one standard deviation.
Conversely, ARS has been weakest currency in December, depreciating on average by close to 3% (<1 standard deviation). RUB, JPY, NOK and PLN have historically weakened respectively 2.0%, 1.4%, 1.1%, 0.7% – equivalent to just over one standard deviations.
So far in November, COP, RUB, SEK, CZK and MXN have been particularly strong relative to historical seasonality. We attribute SEK outperformance to a more hawkish Riksbank. Conversely, CLP and to a lesser extent ARS and USD have been particularly weak, with the Dollar so far in November 2019 down about 0.2% mom.
Since May 2010 USD NEER has recorded the fastest pace of appreciation (27%), followed by the CHF (26.8%), THB (20%), CNY (16.3%), SGD (13.1%) and TWD (12.8%). Commodity currencies – NOK, AUD and CAD – have all depreciated about 20%.
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Olivier is an economist, rates & FX strategist and entrepreneur with over 21 years experience in financial markets. He is Director and Founder of 4X Global Research, an independent, London-based consultancy which provides institutional and corporate clients with substantive research, high-quality analysis and insight on emerging and G20 economies and financial markets.