The Almighty Dollar and the Currencies that Crushed it in 2016

A mix of deceptive calm, hair-raising craziness, and big surprises.

Much of the strength of the dollar in 2016 has been ascribed to rising interest rates in the US and minuscule tightening by the Fed – or rather “removing accommodation,” as it likes to say – even as other central banks still engage in QE and negative interest rate absurdities. So the US became a destination for the hot money. By December 20, the dollar reached the highest point since December 2002 against the basket of currencies in the Dollar Index, though it has since eased off somewhat since then.

But the Dollar Index contains only six currencies: euro, yen, pound sterling, Canadian dollar, Swedish krona, and Swiss franc. It doesn’t even include the currencies of two of the four largest US trading partners, Mexico and China.

So how has a broader range of currencies fared against the dollar? Turns out, some soared, others plunged.

This chart shows how 25 major currencies moved against the dollar in 2016. Note how the euro and the yen, despite major gyrations during the year and efforts by their central banks to crush them, didn’t end the year in a vastly different place than they’d started it, with the euro down 3.2% and the yen up 2.8%. But I circled four of the currencies that did end up in a vastly different place (more on that in moment) because they’re particularly interesting:

The Brazilian Real had gotten crushed between March 2013 and January 2016, plunging in fits and starts 52% against the dollar as Brazil struggled with, among other scourges: the longest recession in decades that has morphed into an economic crisis; a corruption scandal that has engulfed the top levels of government, the construction industry, the state-owned oil giant Petrobras, and other companies; the oil price collapse that pulled the rug out from under over-indebted Petrobras; and a huge spending spree, involving corruption by politicians and construction companies, to host the soccer World Cup and the Olympics. Nearly everything that could go wrong went wrong.

But in January 2016, the Real bottomed out and began to surge. By the end of the year it was up 22% against the dollar. But it’s still down about 30% from mid-2014!

The Russian ruble too got crushed, starting in mid-2014 as the oil bust began to hit oil producing countries. At the time it took about 34 rubles to buy a dollar. Russia’s economy fell into a deep recession, and inflation accelerated. The sanctions didn’t help. By December 31, 2015, it took 72 rubles to buy a dollar. By January 21, 2016, it took 82 rubles, a 59% plunge from mid-2014. But then the price of oil began to bounce, and so did the ruble, soaring 33% in less than 12 months, from the bottom in January to 61.5 rubles to the dollar now. For the year 2016, which eliminates the January swoon, the ruble rose 17.8%. But it’s still down about 45% from mid-2014!

At the other end of the spectrum, among major currencies, the Mexican peso and the British pound got crushed – down 17% and 16% respectively in 2016, each for their own reasons.

Mexico, one of the top trading partners with the US and dependent on the US for its exports, saw its currency get hit starting in mid-2014, falling 37% over those years, from 13 pesos to the dollar to 20.7 now, despite the Bank of Mexico’s feverish efforts to put a floor under it. Mexico’s state-owned oil giant Pemex, which had long been used as an ATM by various governments, is buckling under its load of foreign-currency-denominated debt, the oil price bust, and massive losses, to the point where the government has started to bail it out in mini-steps.

And then Trump, whose campaign platform included a, let’s say, special agenda for Mexico, was elected President. The already shaky peso plunged another 12% in the three days that followed, settling at an all-time low of 20.9 pesos to the dollar on November 14. And it has not recovered since.

The British pound got hammered by the Brexit vote in June and by the Bank of England’s reaction to the Brexit vote in the months that followed. Just before the vote, it was trading at the high of the year. After the vote, it plunged 10% in two days, stabilized eventually, and then re-plunged to an even lower low.

A special word about the Nigerian naira, the biggest loser in the chart above. In response to numerous economic and financial pressures, the government removed the currency peg in June. The naira plunged 30% in one day and has weakened further since. It’s down 36.9% against the dollar for the year.

But the “currency” that soared the most against the dollar? Bitcoin. “Currency” in quotes because it’s not used much as a currency in the overall economic scheme of things. Rather, it’s used as an online betting mechanism against the dollar and other currencies. And it’s an opportunity for people in China to convert their sinking yuan into something else without running into capital controls.

The combination – the lure of gambling and getting around capital controls – has motivated the Chinese to pile into it, and over the year, bitcoin has soared 128% against the dollar, to $988. This is where it had been in November 2013 near the height of the last bitcoin craze, before it plunged over 75%.

The year of the “strong dollar” was that kind of year in currencies, with some central banks (such as the Bank of Japan and the ECB) trying to crush their own currencies, and others (such as Mexico and China) trying to slow the descent of their currencies. It was a mix of deceptive calm, hair-raising craziness, and big surprises that caught markets off-guard. Which is about normal for currencies. And that mix of deceptive calm, hair-raising craziness, and big surprises is likely to play out in 2017 as well. And it seems the much awaited and prophesied “death of the dollar” will likely have to be rescheduled for another year.

But there are big shifts underway. Read…  Foreigners are Dumping US Treasurys as Never Before

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  42 comments for “The Almighty Dollar and the Currencies that Crushed it in 2016

  1. Tom Kauser says:

    evaporation ?
    (When you go to bitcoin its because there is a scarcity of dollars)

  2. Tom Kauser says:

    China to devalue in several hours 7.15 per dollar?

  3. Tom Kauser says:

    Everybody over 45 in the world will be out of a job circa 2018!

  4. Martin says:

    You might want to include one other currency whose importance appears to be continuously increasing – Bitcoin – up an astonishing 160% for 2016.

    • Wolf Richter says:

      I dedicated two entire paragraphs to it (toward the bottom), though it’s not part of the chart.

      • OutLookingIn says:

        Report on ZH that Bitcoin in China is now trading at + $ 1,000.00 USD

        • economicminor says:

          I still haven’t a clue about bitcoin.. I don’t mean about the system but how does a person get in or out of it? And then what? My local store won’t take bitcoin for payment for food nor will the bank or credit card companies take payment in bitcoins.. So even if I figure out how to transfer some US$ into it, then what? It isn’t like there are bitcoin ATMs or are there and I just live completely out of touch?

    • Chicken says:

      It’s amusing the biggest scam sports the greatest gain. I’m not sure if it’s a legitimate flight of capital phenomenon responsible, still not a currency IMO.

  5. michael engel says:

    There is a chart of dollar trade and it looks different from $USD.
    Do you know it’s symbol and where to get it, if possible.
    Thanks and again Happy New Year !

    • Wolf Richter says:

      Are you asking about the “trade weighted dollar?” If yes, here’s the chart:

      “A weighted average of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners.

      “Broad currency index includes the Euro Area, Canada, Japan, Mexico, China, United Kingdom, Taiwan, Korea, Singapore, Hong Kong, Malaysia, Brazil, Switzerland, Thailand, Philippines, Australia, Indonesia, India, Israel, Saudi Arabia, Russia, Sweden, Argentina, Venezuela, Chile and Colombia.”

  6. Lee says:

    The A$ really didn’t do much year to year although it did trade in a wide range of 1.27 to 1.46 to the US$ over the year.

    Chinese that bought property in Australia saw a small appreciation in currency terms and a big jump in property prices.

    Coal and iron ore prices recovered and put a base under the currency as well. If these start falling again in price, watch out below.

    Pundits don’t have a clue about Australian interest rates over the next year. Some are calling for cuts and others for increases (What are those calling for increases smoking??).

    With all the doom and gloom, supposed US interest rate increases , a fall in coal and iron ore prices forecast, and any turmoil surrounding China, the A$ should be in for some wild swings on the way down.

    • nick kelly says:

      The folks predicting rate increases are saying that at some point they must return to reality, which is set in a market.
      You will note all the outcry about central banks in this space. Without their intervention, which is winding down, there has to be a willing lender for every borrower.

      At the onset of the 2008 financial crisis, there were NO willing lenders.
      Freddie and Fanny were insolvent. So the Fed stepped in.
      The only problem was that the FED didn’t have any money to lend so it was just printed and the Fed’s balance sheet was debited.

      The Fed Funds rate is currently .75 %
      No one in the last 500 years has lent money for this return , and for 200 of those years, England had no inflation.
      The average of Fed Funds over the last 100 years is over 5%

      Your last paragraph makes a convincing case for (a) higher Aus rates or (b) a lower Aus dollar. If ALL the potential hazards you describe come to pass and Aus rates don’t rise substantially, it’s very hard to see the A$ above .50 US $.

      • Maximus Minimus says:

        All good points calling for a gold backed currency. The current system will meet it`s inevitable demise, and we will have to start over at some point. I can see lots of pain.

  7. OutLookingIn says:

    The balance sheets of the ten largest central banks as of the end 3QTR 2016 totaled $21.4 trillion. Of which four of those ten accounted for 75% of the total.
    1/ U.S. Fed @ $4.5 trillion
    2/ Peoples Bank of China @ $5.0 trillion
    3/ Bank of Japan @ $4.4 trillion
    4/ E.C.B. @ $ 3.9 trillion.
    The remainder of the world @ $6.7 trillion.
    These are central bank (so-called) “asset” purchases.
    In plain language – money printing. The USD is just the best looking horse at the glue factory.

    Changing accounting rule FAS 157 and eliminating mark-to-market for banks, did not end the financial crisis. Far from it, the result being an extended topping, overvalued, overbought, over bullish, market peak of what is now the third financial bubble since 2000.
    As a side note for 2016, gold is +6.39% and silver +11.71%

  8. Edward E says:

    Jim Cramer Talks About Iraqi Dinar

    What has ever happened to the IQD? Is it about to be demonetized? Or could it eventually make Cramer look smart.

    • Edward E says:

      “Tubman? I mean…who is she? She not even pretty. Why do we want her? Look, here’s what’s…it’s going to be great, really great… as soon as I’m elected we’re going to change the face. But’s going to be my face. Can you imagine? I’m told it’s a very handsome face. Not the twenty though. That’s a loser bill. I’m going on the hundred. A great bill. I could go on the thousand. That’s what I deserve but not enough people have them. The hundred is something everyone walks around with. It’ll be gorgeous…so good. We don’t need Franklin anymore. What did he ever do? He wasn’t even president.”

      Are we going to be calling these ‘Swamp Bucks”? Imagine the Fouke monster on the dollar bills, wow, what’s stopping him from doing it now?

  9. d says:

    CNY – 6.5%

    So the second largest economy in the world with a 6.5% growth rate devalued against the $.

    Yet china is not manipulating its currency for trade gain, they say.

    The ANZAC states have been odd this year, one has been a FX trader short target, and Euro US $ Media foil, whilst the other has gone into surplus.

    They have maintained their place with the US $, and they are both big traders with china. that hasn’t.

    Historically chian has caused some of the biggest global trade and financially upheavals the world has ever known. Like global silver crises. Due to uncontrolled excessive chinese money printing.

    They will do it again. chian is not a market economy so can kick the can much much longer than everybody else.

    However it must unwind the state sponsored zombies or be killed by them, eventually..

  10. NotSoSure says:

    Thanks. Probably gonna start shorting the Real. Canadian Dollar up 3% against the USD? LOL. Next the Canucks will be arguing about how diversified their economy is. A bubble is a mentality, nothing else. When that bubble pops, it’s going to be SUPER painful.

    • nick kelly says:

      As of September 2008 the Surveillance Australia fleet numbers 14 aircraft:[6]

      2 Bombardier DHC-8-202 Dash 8
      4 de Havilland Canada DHC-8-202 Dash 8
      1 de Havilland Canada DHC-8-202 Dash 8 (LADS-equipped)
      3 Bombardier DHC-8-315 Dash 8
      1 de Havilland Canada DHC-8-315 Dash 8
      3 Reims F406 Caravan II

      Not sure about the last, rest are Canadian.
      Ergo: it’s more diversified than Oz

      • NotSoSure says:

        I wasn’t asking about the Oz. This article is a comparison against the US Dollar. In what world is Canada a more “diversified” economy than the US? The Canadian dollar being up is all a matter of hot money inflow. Nothing else. I see I have attracted a person who’s living in a bubble.

        • nick kelly says:

          The name is- and Dodge is no longer Dodge Brothers.

          BTW: the de Havilland Twin Otter is back in production by Viking Air, same design.
          Twice in the past few years the US has had to medivac someone from its South Pole Base. There wasn’t a single plane in the US that could do it. A Twin Otter was chartered in Alberta, and began heading south. For the hop from the end of South America to the Arctic, it had to break regs re: fuel, once past half way it couldn’t turn back.
          I assume it landed on skis.

        • nick kelly says:

          The reply is intended for the plane buffs. The idea that hot money is flowing into the C$ is almost too absurd to merit reply.
          Already one rate hike behind the US (.5 versus .75) Governor Poloz tells us he almost CUT rates in October.

      • Paulo says:

        The last is a Cessna made in Kansas

      • Maximus Minimus says:

        Exactly. Notice the name de Havilland, taken over by Borbardier ages ago. These are mostly past glory.

  11. Bruce Adlam says:

    If government and sick CB think they can defy nature then democracy will be broken because it’s impossible in the end NATURE WILL WIN

  12. jb says:

    great recap WR – as a previous blogger mentioned; the dollar
    is the cleanest shirt in the dirty laundry hamper . POST 2008 after the feds monetized debt , japan followed and then the ECB i believe . i see a pattern . If all countries monetize
    in a near tandem no currency prevails – status quo prevails .
    Why do central banks/government think they can micro
    manage the economy ?

    • nhz says:

      Yes, it’s just one big race to the bottom for all fiat currencies. Makes sense that the biggest winners of last year are the biggest losers of previous years, no country can significantly devalue their currency against the others without causing huge trouble.

      Keeping currencies fluctuating wildly makes it more difficult for the sheeple to see what central banks are doing, and it provides cover for politicians who try to win votes by imposing trade tariffs and other punishments for their competitors in the global economy.

  13. Anon says:

    61.5 rubles to the $? That’s new rubles. Or 61,500 old rubles. When I visited Moscow in June 1991, the going rate was about 27 old rubles to the $. A ride on the subway cost the equivalent of 4 US cents. A great ticket to the Bolshoi Theater was only 10 rubles (about 40 cents) but one had to know the cashier at the box office to get that price, or bribe her with US $. By the beginning of 1998, the old ruble had lost so much value that 3 zero’s were lopped off. 6,000 old rubles were worth 6 new rubles. Not as bad as Germany 1923, but not good either for the average Russian.

    • Wolf Richter says:

      When I arrived in Russia the first time (1996), the exchange rate was about 5,000 rubles to the dollar. All prices were marked in dollars and converted on the fly into rubles at the current rate. By the time I left a month later, the ruble had lost another 10% or so. Tough times for many Russians. I stayed with some former middle-class people, great folks, but impoverished. He used to be a manager in a factory. Well, he still was, but they stopped paying him, and he stopped working there because there was no work. So they took in travelers to make some extra money. But the young people I met were excited about the future.

      • JB says:

        might be prudent to go “long ” the ruble for 2017.
        Russia has a low debt to GDP level most of it private
        debt . Putin has embarked on gold acquisition for
        its reserves. (maybe to back its currency?) to prevent
        ruble devaluation from sanctions ? Russia is rich in natural resources. Strong defense exports . with
        things warming up between the new admin (trump)
        maybe its time to buy this sleeping bear comrades !

        • Wolf Richter says:

          When you measure the government’s debt you need to take into account the debt owed by state-controlled companies. And they owe a lot, much of it in foreign currencies! They also pick up the tab for part of the social safety net (subsidized fuel costs, etc.).

  14. Whitey Ford says:

    It’s disingenuous to claim Bitcoin is a currency even though it may now work to facilitate some financial transactions. It’s no better than paper US dollars, and probably worse. Ideally(and we don’t live in a make-believe world) it’s a method to have a crypto-gold standard, but by that measure, we might as well just have a normal gold backed currency with no counterparties along with the current types of electronic payments we already enjoy. Bitcoin’s appeal is relief from unbacked currency, but it holds no advantage over gold.

    • nhz says:

      agree, one of these days the internet is going offline for a long time due to cyberwar, or the Bitcoin exchanges will be suspended indefinitely by the US financial authorities in order to ‘fight terrorism’.

      Let’s see what real value of Bitcoin is then … definitely worse than paper dollars and no better than paper gold, except maybe for laundering money.

      • Frederick says:

        nhz I agree it seems that they are very vulnerable to government/bankster control so how is that any better than what we have now Sort of like what Aaron Russo described with chipping everyone where they can just shut off your chip if they so choose No thanks I will pass

  15. Tom Kauser says:

    My big box employer did nothing new for Christmas
    And really down played the event this year and hence I believe China is plenty worst off than advertised.
    This federal reserve has been running a tight monetary ship and has made its balance sheet available to cash the world’s chits?
    Its been going on three years since a last QE was attempted and without a QE 4 the fed is scrubbing everything dollar wise out of the world economy?
    The fed is waiting on a big event by keeping its powder dry and buggering the world of its dollars?
    I believe a Chinese devalue and an American QE is planned prior to JAN 20 or its back to stripping wallpaper!

  16. Justme says:

    Is the “crushed it” in the headline meant in the video gamer sense?

  17. Chicken says:

    “The British pound got hammered by the Brexit vote in June and by the Bank of England’s reaction to the Brexit vote in the months that followed.”

    Nope, it was the current account deficit and was a long time coming. IMO

  18. ManAboutDallas says:

    This is the Year of the Antipodes: Aussie and Kiwi. A quick look at any long-term chart of either reveals an impending rally of monumental proportions. When it concludes, Aussie will be at about $1.20 and Kiwi about $1.15.

    • d says:

      “This is the Year of the Antipodes: Aussie and Kiwi. A quick look at any long-term chart of either reveals an impending rally of monumental proportions. When it concludes, Aussie will be at about $1.20 and Kiwi about $1.15.”

      $NZ generally trades in the 80 – 90 % values of $AU.

      $NZ has been on the high side lately, as the $AU got an undue beating due to china and minerals.

      Not unusual for $AU to go above parity with $US, very unusual for $NZ to do that.

  19. Kevin Beck says:

    I believe there is one major reason why the Dollar Index will not include the Chinese Yuan.

    The reason: China tries to maintain a peg to the dollar. They may not always succeed, but that is what they want with their currency. They will change their dollar holdings to try to keep this support for their own currency.

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