Currency Volatility Tracker

Currency Volatility Eases as the Dollar Declines

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The currencies of Australia, Mexico, India, Brazil and South Africa reached all-time lows against the dollar in the second quarter of 2020.

Global currencies rebounded in the second quarter of 2020 against a declining dollar, but not before several plummeted to record lows.

It was a tale of two halves in currency volatility for the second quarter of 2020 as the pandemic-related volatility from the opening quarter carried over into the second quarter with several key currencies suffering all-time lows against a rising U.S. dollar before soon recovering as the dollar began to lose value, according to the latest currency volatility data from the Currency Volatility Index (CVI)

Overall currency volatility fell to 1.64 percent in the quarterly period from April 2nd through June 30th, according to CVI data from 123 world currencies, a dramatic improvement from the virus-ravaged opening quarter that saw volatility reach 2.15 percent, the highest quarterly average since the first quarter of 2015 when the commodities crash was in full swing.

The volatility reversal was driven largely by greater stability among emerging market currencies and the currencies of other commodities-based economies such as Zambia, Norway and Kazakhstan.  For example, Zambia's currency, the kwacha, reached a volatility mark of 7.41% in the first quarter but cooled off to 1.08% in the second quarter.  Norway, a major oil-exporter, saw its currency, the krone, settle in at 4.18 from a 7.92% volatility rate in the first quarter. 

Commodity volatility for the second quarter was 6.67%, and although still high, was much smoother than the 13.77% in the opening quarter.  Overall, commodities rose 19.2%, a dramatic turnaround from the virus-driven decline of 26.7% in the first quarter of 2020, according to the Dow Jones Commodity Index.  The rise was driven by rebounds in the price of oil and gold, which rose 10.3% breaking the $1790 per ounce barrier for the first time since 2011. 

The commodity surge created downward pressure on the dollar sending it tumbling 2.87% for the second quarter, according to the WSJ Dollar Index that measures the dollar against a basket of currencies.  In all, 44 currencies gained 2% or more in value against the dollar, a rare occurence and the most since 46 currencies achieved the feat back in Q1-2016, a quarter in which the greenback declined 4.04 and gold surged 16.4%.  For the year, however, the dollar is still up 2.38%.

The wild swing in currency values from the first quarter to the second saw a variety of world currencies reach record lows against the dollar at the onset of the period only to rebound throughout the quarter as the dollar declined.  The abrubt reversal of fortune for the world's most important currency and the corresponding rise in the price of gold could spell trouble for the U.S.  "A weakening dollar likely means a reduced willingness to purchase Treasuries on the part of international investors," according to Mark Gold, Senior Economic Advisor to CreditPulse.

No currency experienced a bigger rollar coaster ride than Indonesia's currency, the rupiah, as its value reach an all-time low of 16,475 to the dollar on April 2nd only to rebound 13.47% to 14,255 by June 30th for the largest quarterly increase of any global currency.  Indonesia, the world's fourth most populous country with a large mining and oil industry, had the third most volatile currency in the quarter 5.79%.

Other major commodites-based economies such as Australia, Mexico, India, Brazil and South Africa saw their currencies plummet to record lows due to the global economic slowdown caused by the Coronavirus pandemic.  Khazakstan, New Zealand, Colombia, Russia, Sweden and Norway also hit record or near record lows only to rebound sharply at the end of the quarter.

For once, Australia's currency was more volatile than its neighbor New Zealand as the Aussie dollar hit an all-time low of $1.65 on April 2nd only to rebound to $1.448 by June 30th, an increase of 12.24% in only three months.  Meanwhile, the kiwi, reached its low mark of $1.752 on March 20th.  The Canadian dollar fell to 1.435 its lowest level since January 2016.

The Mexican peso, the most frequently traded emerging market currency as a result of its trading partnership with the United States, saw its normally stable currency reach an all-time low of 24.988 against the dollar on April 2nd.  Although the peso's rebound wasn't as sharp climbing only 5.04% by the end of the quarter to 23.006 it was still the 6th most volatile in the world at 4.54%.

China's currency came perilously close to its all-time low of 7.1567 registered in August of last year as the yuan fell to a value of 7.137 on May 29th.  China controls the daily value of its currency with a preset trading range based on the value of the dollar, but that range has been tested since last August when it crossed the 7.000 mark and reached its lowest point since recording a value of 6.9593 in December 2016.

The euro fell 3.38% against the dollar for a volatility rate of 1.70%, 24% higher than the dollar.  The Japanese yen was virtually unchanged falling just 0.04%.  And finally, Zambia, the African nation that is the most sensitive to movements in commodities, saw its currency, the kwacha, climb only 0.55% against the dollar for a volatility rate of 1.08%.

Written by John Bassford, editor and senior currency analyst