FXStreet (Delhi) – Research Team at Deutsche Bank, notes that the trendiness in the G10 space has soared in the first two weeks of the year, with CAD, NZD and JPY forming the vanguard.
Key Quotes
“At the same time, realized volatility has marginally fallen. Most interestingly, price action so far this year has not been dominated by a uniform trend: there has been a sharp decline in cross-currency correlations.
Over the past quarter, growth has been the top macro driver in G10, explaining much of the CAD’s underperformance. Positive trends in core inflation have supported the outperformance of USD and JPY, but were of little help to NOK or AUD.
Among the financial drivers, equities have a positive but largely spurious correlation with currency performance. The link with monetary policy, as ever, has been more robust. In particular, the prospect of neither the BoE nor the BoC following the Fed’s hiking cycle any time soon–in contrast to previous Fed cycles–has cost GBP and CAD dearly.
In Europe, both CHF and SEK could not capitalize on abating market expectations for easing in December, not least because of the threat of market intervention on the part of the central banks.
EM
In EM, trendiness has increased gradually since the beginning of this year, while cross correlation among the currency pairs has remained at moderate levels. Nonetheless, emerging markets remain more volatile than G10, posing greater risks to investors.
With respect to market drivers, our charts have been rescaled by the sorry performance of ZAR and RUB over the past quarter. Among the drivers, sovereign risk remains primus inter pares. Rising short end rates and attractive carry levels have failed to provide protection.”
(Market News Provided by FXstreet)