July 1, 2020. Next update: July 15, 2020. Visit Search to look at past issues of World Currency Observer (brochure edition).

As the coronavirus covid-19 pandemic continues, currencies have generally been allowed to find their market-determined levels in most countries, against a background of lower interest rates and more liquidity (targeted at avoiding economic meltdown), and of central banks and other exchange rate authorities concentrating on ensuring that there is enough foreign exchange for essential imports (food and energy), and that adequate financing is available to keep international supply chains flowing. Intervention in foreign exchange markets, when it has occurred, has been generally on the buy side, injecting foreign currency in the market to ensure liquidity for the home exchange rate, often with explicit mention that the purpose is to facilitate downward movement of currencies

So it is interesting that there is a long list of currencies around the world which have appreciated steadily against the US$ since reaching a low in the middle of March, among which are the Norway kroner, the Thailand baht , the Sweden kroner, the Canada dollar, etc. There is another list of currencies whose appreciation against the US$ has been less steady, but the net movement has still been up - this list includes the Euro, the Taiwan dollar, etc. Despite the sharp reductions in economic activity throughout the world due to government-led responses (partial shutdowns) to the coronavirus pandemic, the reductions in trade and capital movements in all countries (inflows and outflows both down) have added up to orderly movements in exchange rates. Even initiatives by emerging countries to borrow more (or, in some cases, to moderate the interest and principal burden of their existing external debt) are not motivated by classic balance of payments crisis situations, but rather by the need to support their domestic economies. And, of course, the higher income countries of the world have less need for external US$ or Euro-denominated finance, and have been able to finance their deficits by issuing debt denominated in their own currencies (see below). A common thread which appears to be emerging is that countries which have, so far, best succeeded in moderating or eliminating growth in Covid-19 cases -"flattening the curve", which, of course, is not the same as eliminating the impact of the coronavirus, which will take years - have seen this success reflected in stronger exchange rates against the United States dollar and against other currencies around the world (example: the New Zealand dollar). This is something of a paradox, since, as noted above, exchange rate authorities in most countries have expressed approval for the depreciation of their exchange rates.

The Mexico peso fell by 4% against the US$ in June, and the Canada dollar was up by 1.5%. The Iceland króna fell by 1% in June against the US$, and is down by 11% since this time last year. The Dominican Republic peso fell by nearly 2% in June 2020, and is down more than 15% since this time last year. The Jamaica dollar rose by 3.5% in June against the US$, but is down by 6.5% since this time last year. (Statistics shown to WCO suggest that Jamaica's rate of coronavirus infection is lower than that of New Zealand, and is almost as low as that of Cuba, which has a fixed exchange rate.) With the exception of the Uruguay peso, which rose by 3% against the US$ in June 2020 (down 19% since this time last year), South America currencies were generally weaker against the US$ in June, with the Brazil peso down slightly (down 42% since this time last year). The Euro continued its May 2020 rise with a 1% appreciation in June against the US$. The Swiss franc rose by 1.5% in June, and is up by 3% against the US$ since this time last year (Switzerland was perhaps the only currency in the world which has seen steady central bank intervention over the shutdown period in order to moderate upward strength). The United Kingdom pound is down by 3% against the US$ since this time last year. Almost all Eastern Europe currencies rose against the US$ in June 2020, with the exceptions being the Hungary forint and Turkey lira, both down slightly. Currencies of nearly all former USSR countries rose against the US$ in June, with the strongest movement by the Georgia lari, up by 4.5%. The Russia rouble rose by 1.5% against the US$ in June 2020. The Iran riyal fell by 28% against the US$ in June, and the Syrian pound was down by nearly 80%. The Israel shekel was up by 2.5% against the US$ in June, and up by over 4% since this time last year. The Egypt pound was down by 2% against the US$ in June, but up by 3.5% since this time last year. The Tunisia dinar rose by nearly 1.5% in June against the US$. The Guinea franc fell by just over 2% in June, while the CFA franc, used by a number of countries in western and central Africa, rose by 1% (linked to the Euro). The official Nigeria naira fell slightly in June (Nigeria is managing its multiple exchange rate structure as part its approach to coping with the coronavirus). The Mauritania ouguiya fell by over 6% in June against the US$). The DR Congo (Congo-Kinasha) franc fell by nearly 3% against the US$ in June 2020 (down 13% since this time last year), and the South Africa rand was up by 1.5% in June. The Mozambique metical fell by 2.5% in June against the US$. The Uganda shilling was up by nearly 1.5% in June, and is at roughly the same level against the US$ as at this time last year. The New Zealand dollar rose by 4% against the US$ in June (down 4.5% since this time last year), and the Australia dollar was up by 3.5% (down just under 2% since this time last year). The Indonesia rupiah rose by 3.5% against the US$ in June. The China yuan was up by nearly 1% against the US$ in June (down 3% since this time last year against the US$). The Pakistan rupee fell by just over 3% against the US$ in June, and is down by 2% against the US$ since this time last year. The Thailand baht rose by 2.5% against the US$ in June, and the Malaysia ringgit was up by 2% (down nearly 3% since this time last year against the US$). The US$ prices of a broad range of commodities moved up in June 2020, such as copper. Among the exceptions to the upward movement were cocoa and coffee prices. Oil prices are around 40% lower than they were at the start of 2020.

A recurring theme in commentary about the coronavirus pandemic is the debt situation of the emerging market group of countries. Public entities such as the IMF and Paris Club have been active, with new announcements of financing by the IMF made almost every day. The Paris Club has announced a number of time bound debt service suspensions, in line with the offer, made by the G20, of the deferral (not/not the cancellation) of interest and principal payments (see the WCO June 2020 brochure for more on the terms and conditions of the G20 offer). Among the countries which have recently gone the Paris Club/G20 route are Côte d'Ivoire, Guinea, Togo, Comoros and Kyrgyzstan. The major bond rating agencies have downgraded several countries and a number of major financial institutions, not just the ratings of the emerging market group (the assessments of the rating agencies are very public, but their views and approach are generally in line with unannounced moves by private lenders). But, despite this, WCO has the impression that access to private capital markets by sovereign borrowers has remained very good during the pandemic, with the enhanced worldwide liquidity from the central banks of the developed countries supporting demand for debt issues by foreign entities. Also, interest rate spreads for emerging economies against the higher quality bond issues have, if anything, gone down, despite the debt downgrades. One key element of the availability of credit to emerging countries will likely be that the larger financial institutions, including banks and insurance companies, have reduced opportunities to lend in their domestic markets despite the increased liquidity mentioned above, but they are also under pressure from rating agencies and regulatory authorities to maintain high quality balance sheets, constraining them from buying too much lower quality emerging market debt.

(World Currency Observer will next be updated on July 15, 2020. Visit Search to look at past issues of World Currency Observer (brochure edition). For permission-to-quote enquiries, e-mail World Currency Observer at WCO@briargreen.com.)