The year 2016 is an anticipated chaos for currencies due to the many things that happened in 2015 especially with the developments in the dollar and the yuan. Last year saw the rigorous rise of the dollar versus the other major currencies of the world. Meanwhile, the China experienced a crucial summer that saw the shock devaluation of its major currency, the yuan.
It has been a rough beginning of the year for the global markets and it is apparent that the following currencies will take the most hit after last years developments.
The Canadian Dollar
The Canadian Dollar or CAD or more widely known in the forex industry as the loonie, has dramatically decreased against the US dollar or the greenback. For the year 2015, the loonie took a hit of 16%. Among the world’s 16 major currencies, it performed as the third worst currency in the previous year due to a slew of bearish factors that hit the country: slowing global growth, interest rate reduction by the Bank of Canada, recession in the first six months of 2015, 30% decline in crude oil prices, and declining commodity prices. All these events had dragged down the Canadian currency. That 16% slide also did not come as a surprise. For the past three years, the loonie has been on a steady decline which totals to 28% loss against the dollar.
This year will, hopefully, be a better year for the loonie. As the events that previously dragged the currency have abated. It is an anticipated year of benefits for the Canadian economy too due to the weak currency and the monetary and fiscal stimulus among other major economies.
The Euro’s performance in the previous year can be summed up as a constant decline. The region had a rather rough year with Greece going into political crisis in the first half of the year. This had the world economy turning its spotlight on the euro area with concern on its future. The currency has since been constrained under the weight of several geographical situations. Moreover, the euro’s unexpected devaluation in August 2015 added to the fall of the euro. And by December, the expectations for expanded monetary stimulus measures from the European Central Bank has dragged the euro down 1.05 versus the dollar. However, the expected monetary stimulus weren’t as tense as anticipated, giving the euro the chance to rebound. In total, the euro dropped by 10.2% against the dollar for the year 2015.
Forecast for the year 2016 puts the euro in a slower decline with analysts predicting a balance between the euro and the greenback. Be on the lookout for a stable euro for the year 2016.
Perhaps the most popular currency in the recent months is China’s yuan because while the dollar dominates the forex market, it is the yuan that is under the spotlight in the world economy stage. What makes the yuan prominent is its independency from market forces that determine the exchange rate. The yuan is not a floating currency but a managed currency controlled by the central bank of China or the People’s Bank of China (PBOC). The PBOC employs a managed float system to match the currencies of the world. And from 2004 up until 2014, the Asian giant allowed the continuous appreciation of their currency as part of their seclusion. However, this ended after US lawmakers called for the revaluation of yuan as an answer to the soaring trade deficit of the US with China.
The beginning of 2016 has brought the Chinese currency to its lowest in nearly five years. Market participants are shaken by this because it entails the following: a weaker Chinese economy than the numbers show and a more intense deflation for the global economy. The world is, apparently, affected greatly by what happens to China. So this year, expect China to be at the center of the global eye.
Look out for these currencies as they would be part of the market force that will indicate how the world economy will be.