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Forex ratings

Our current assessments

Foreign exchange valuation and the related liquidity risk are a major challenge for SME processing their payments in different currencies. On this page, we provide our continually updated projections for major forex crosses over the coming 3 months.


 

EUR/AUD

Revision from 21 September: Now that Hungary and Poland have threatened to veto the Recovery Fund if their additional demands are not met, and the Frugal Four have indicated that their national parliaments might not ratify the fund, too, the euro’s sound footing has suffered renewed cracks. Moreover, time is of the essence as the bonds necessary to rake in those €750bn were planned to be auctioned before the year is out.

Still, this is one of the few major currency pairs in which the euro particularly stands to have the upper hand near to mid-term: The Australian dollar traditionally is one of the most reliable gauges of the frictionlessness within the global economy: As long as the latter hums along nicely, the Aussie does well. Once the spammers hit the works, the currency Down Under gets into trouble. The recent, breathless rally in risk assets across the board has masked that underlying trend certain to resurface soon. So perhaps to a lesser extent compared with its crosses to the US dollar or the Japanese Yen, the Australian dollar stands to fall from its current highs against the euro eventually.

EUR/CAD

More often than not, the Canadian dollar is a function of Brent crude prices. In times of a huge shock to the whole of the global economy at once, that holds even more true than usual.

Even though the “Loonie” has managed to stabilise somewhat between the initial market rout and today, that, too, has been primarily the result of oil prices stabilising by and large after their precipitous 40%+ drop-off in March. In general, just like its Commonwealth cousins on the other side of the world the Canadian economy is relatively more vulnerable to a deteriorating global economy than its G7 peers. That’s why we expect the euro to gain against CAD over the near term, albeit less than against, say, the Turkish lira (see below.)

EUR/CHF

Revision from 21 September: Now that Hungary and Poland have threatened to veto the Recovery Fund if their additional demands are not met, and the Frugal Four have indicated that their national parliaments might not ratify the fund, too, the euro’s sound footing has suffered renewed cracks. Moreover, time is of the essence as the bonds necessary to rake in those €750bn were planned to be auctioned before the year is out.

Still, the traditional balance between the European common currency and the Swiss Franc remains turned upside-down for the time being: So far, the Franc has reliably appreciated against the euro (and indeed a basket of all other currencies) in times of economic stress. But with the new instrument of common bonds potentially buttressing the common currency regardless of each member state’s individual solvency, the euro itself would become a safe haven, limiting its downside potential against the Franc.

EUR/CNY

The Yuan doesn’t look good. Not good at all. Not only that China’s capital account becomes increasingly beleaguered, with the coronacrisis working as a catalyst of an underlying trend – The Chinese economy looks particularly vulnerable to a corporate debt crisis in the making once markets start to choke on ever higher financing needs.

Portfolio rebalancing underlines that analysis: Foreign investors have retrenched on their equity and corporate debt investments in the Middle Kingdom, and have been focussing on sovereign debt instead. Against this backdrop, the anyway strengthened euro stands to perform well.

EUR/GBP

Revision from 21 October: Since the Euro seems a bit overbought with regard to the impasse over the EU’s common budget, we remain biased in favour of the Pound. Yet the horizon has darkened considerably.

Not only has a second coronavirus wave broken on the shores of the UK eventually, but Brexit has become a real millstone around the British economy’s neck, too. Yes, we fully expect some form of a bare-bones deal to be struck between the EU and the UK come November, most probably combined with yet another technical extension as might become necessary for ratification. But in effect, the UK will be leaving the EU on somewhat embellished WTO terms, at least for the years ahead. After a technical relief rally on the immediate news of an agreement between London and Brussels, we therefore expect Stirling to stagnate against the Euro and, probably to a lesser extent, against the US dollar.

EUR/JPY

Revision from 21 September: Now that Hungary and Poland have threatened to veto the Recovery Fund if their additional demands are not met, and the Frugal Four have indicated that their national parliaments might not ratify the fund, too, the euro’s sound footing has suffered renewed cracks. Moreover, time is of the essence as the bonds necessary to rake in those €750bn were planned to be auctioned before the year is out.

Furthermore, the euro’s recent rally materialised against the backdrop of markets literally melting up across the board in a virtually untethered risk-on mood. The moment investors come to price in the dire reality of the post-corona global economy (more likely than not accompanied by a second wave of corona infections), the euro will succumb to bouts of weakness against safe-haven currencies again, perhaps with a bit more downside against the yen relative to the dollar.

EUR/SEK

Revision from 9 June: Having run its marked appreciation course against the euro, the Swedish crona is now in for the reverse turn:

After the remarkable risk-on mood in recent weeks, small-country currencies vulnerable to global trade such as the Scandinavian cronas (with the exception of the Danish currency for its peg to the euro) are in for a bout of weakness. After the EU leaders’ agreeing a coronavirus Recovery Fund, this cross in particular should be trending upwards over the near-term.

EUR/SGD

The Singapore dollar is relatively more stable than its Australian or New Zealand cousins – which, of course, is no wonder considering that the Monetary Authority of Singapore implements its policy by managing the Sing dollars exchange rate against a basket of currencies. Having lowered back in March the trading band within which the Sing dollar is alowed to fluctuate, one might expect SGD to devluate further; yet we don’t think so for reasons given here.

EUR/USD

Revision from 21 September: Now that Hungary and Poland have threatened to veto the Recovery Fund if their additional demands are not met, and the Frugal Four have indicated that their national parliaments might not ratify the fund, too, the euro’s sound footing has suffered renewed cracks. Moreover, time is of the essence as the bonds necessary to rake in those €750bn were planned to be auctioned before the year is out.

Furthermore, the euro’s recent rally materialised against the backdrop of markets literally melting up across the board in a virtually untethered risk-on mood. The moment investors come to price in the dire reality of the post-corona global economy (more likely than not accompanied by a second wave of infections), the euro will succumb to bouts of weakness against safe-haven currencies again, perhaps with a bit less downside against the dollar relative to the yen.

EUR/TRY

Revision from 25 September: The surprising, pronounced rate hike by the Turkish central bank has created a floor under the lira – for the time being. If they are to defend the Turkish currency sustainably, though, the country’s rate setters will need to follow up rather sooner than later.

Hence, besides commodity currencies such as the Australian or Canadian dollars (see above), this currency pair remains one of the few in which we expect the euro to appreciate over the coming months, if somewhat more mildly now that the Turkish central bank has decided to intervene. Turkey ranks among the emerging markets hit most by the coronacrisis. Its heavy dependency on both external debt as well as crude oil both denominated in US-dollars make the country particularly vulnerable in times of financial stress. Consequently, we cannot see the Turkish lira going anywhere but down against major currencies and thus the euro, too.