What’s the latest on the G10FX and EM currently?

This week, global recovery trades have seen momentum rapidly picking up. AUD/JPY and NZD/JPY have risen sharply by 6% whilst traditional safe heaven currencies such as CHF, JPY and USD have all underperformed.

These recovery trades have not appeared from nowhere, they have steadily picked up momentum through last month. Some of the EM currencies that were hit the hardest have now benefited from increasing flows, such as the ZAR and MXN.

Since the 19th of March, the dollar has been the worst performing G10 currency, topping the Euro. The greenback (Year to date) has traded at a -/+ 5% range against most G10 currencies. The three currencies of SEK have now recovered their losses from earlier this year (SEK +1.8% YTD) (EUR +1.0% YTD) (CHF +0.9% YTD).

On the other hand there are still some currencies that are underperforming against the dollar (NOK -5.9% YTD) ( GBP -4.7% YTD) ( CAD -3.8% YTD) (NZD -3.7% YTD). These lagging currencies could provide room for further recovery against the dollar. Upsides in commodity prices would also drive NZD, CAD and NOK prices higher.

Although various emerging market currencies have outperformed , given the recent flows, a more broad view reveals a very mixed picture. The MSCI emerging market index is still down -5% , rising slightly from its lowest peak in March at -7%. EM currencies such as the ZAR are trading -17% against the dollar YTD , weighing on the MSCI index. Therefore there is still a lot more catch up for EM currencies against the dollar.