Economy
Currency Update for Steel Trading Nations
Written by Peter Wright
December 23, 2020
The U.S. dollar weakened against 15 of the 16 steel and raw materials trading nation currencies in both the last 30 and 90 days. The biggest changes in the last 90 days were in the value of the South African rand, up 12.2 percent, the Korean won and the Mexican peso, both up by 6.0 percent, and the Brazilian real, up by 5.7 percent. The only currency of the 16 that declined in the last 90 days was the Turkish lira, down by 1.2 percent.
Steel Market Update tracks the currencies of the 16 pre-eminent global steel and iron ore trading nations on a daily basis and reports monthly. The currencies of these 16 don’t necessarily follow the Broad Index value of the U.S, dollar, but have in the last five months. The latest value of the Broad Index as published by the Federal Reserve was Dec. 11, on which date the dollar was down by 10.0 percent since March 9 and down by 3.5 percent in three months. At the three-month level, the daily Broad Index has declined almost every day since May 14. Our country data from Oanda was current as of Dec. 20.
Figure 1 plots the daily Broad Index (BI) value of the U.S. dollar since 2013. The BI has declined steadily since March 23, 2020.
Table 1 shows the number of currency units that it takes to buy one U.S. dollar and the percentage change in the last year, three months, one month and seven days. The overall picture for the steel trading nations is that in three months prior to April 13, the dollar strengthened against 14 of the 16; in this current report of Dec. 20, it weakened against 15 of the 16. Table 1 is color coded to indicate weakening of the dollar in green and strengthening in red. We regard strengthening of the U.S. dollar as negative and weakening as positive because of the effect on net imports. Figures 2 and 3 show the extreme gyrations that have occurred at the three-month and one-month levels in the last five years.
Figure 4 shows the 12-month picture, which removes some of the volatility by illustrating the number of currencies against which the dollar was weakening on a year-over-year basis. In March and April 2019, the dollar strengthened against all 16 at the 12-month level. There was a progressive weakening until December 2019 and January 2020 when the dollar weakened against nine of the 16. This was followed by a strengthening through April and May and a renewed decline through mid-December. In the 12 months leading up to the end of December 2020, the dollar weakened against nine of the 16. A weakening dollar puts upward pressure on globally traded commodity prices including most steelmaking raw materials.
Our files contain charts of the history of the value of all 16 steel trading nation graphs and are available on request.
Explanation of data sources: The Broad Index is published by the Federal Reserve on both a daily and monthly basis. It is a weighted average of the foreign exchange values of the U.S. dollar against the currencies of a large group of major U.S. trading partners. The index weights, which change over time, are derived from U.S. export shares and from U.S. and foreign import shares. The data are noon buying rates in New York for cable transfers payable in the listed currencies. At SMU, we use the historical exchange rates published in the Oanda Forex trading platform to track the currency value of the U.S. dollar against that of 16 steel trading nations. Oanda operates within the guidelines of six major regulatory authorities around the world and provides access to over 70 currency pairs. Approximately $4 trillion U.S. dollars are traded every day on foreign exchange markets.
Peter Wright
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