The U.S. dollar was one of the weakest global currencies in the first nine months of 2016 with most world currencies performing better than it did. This began to change in late June after the BREXIT vote in the UK when the British pound dropped precipitously. Still, prior to the election on November 8th, almost every significant currency was still outperforming the dollar. The major dollar rally in November and December changed everything, however, with only a handful of currencies doing better than the greenback by the end of the year. If these trends continue, the U.S. dollar will remain close to the top of the heap in 2017.
An examination of the currency performance by geographic region shows the dollar ended 2016 out performing all currencies in Asia and Europe. Three countries in Latin America had stronger currencies, though. Two countries with commodity-based economies (a separate category) also had stronger currencies than the U.S. While currencies on all continents were outperforming the greenback between March and October, a major decline took place in Asian and European currencies following the U.S election. This was not the case in South America, and among some of the commodity-based countries.
South America had the most consistently strong currencies throughout 2016. The Brazilian real, rising 21.7% versus the U.S. dollar, was the strongest world currency in 2016, as it was in 2009. The Colombian peso and the Chilean peso also did better than the trade weight dollar, both being up around five percent or more. Two Latin American currencies were big losers, however. The Mexican and Argentinean pesos were down 16.1% and 18.6% respectively. The value of Mexican assets, suffered the most of all countries following Trump's election.
Latin American Currencies In 2016 Black line U.S. Dollar, Blue Line Brazilian Real, Red Line Columbian Peso, Yellow line Chilean Peso, Bronze line Peruvian Sol, Orange line Argentinean Peso, Gray line Mexican Peso
Currencies in Asia were high flyers for much of 2016, as were South American currencies, but unlike those in South America, their values plummeted across the board in November and December. The Japanese yen was one of the strongest currencies worldwide in the summer of 2016, but finished the year up only 3.6% - less than the trade-weighted dollar. The Taiwanese dollar also ended the year with about the same return. The Thai baht was barely changed. The Korean won, Indian rupee, Malaysian ringgit, and Indonesian rupiah had slight losses in 2016. The worse performing currency was the Chinese yuan, down 6.7%.
Asian Currencies In 2016
Black line U.S. Dollar, Orange line Japanese Yen, Dark Gray line Indonesian Rupiah, Green line Taiwanese Dollar, Yellow line Thai Baht, Red line Korean Won, Bronze line Indian Rupee, Blue line Malaysian Ringgit, Light Gray line Chinese Yuan
Europe was one of the weakest areas of the globe from an investment perspective last year and only one of its currencies - the Norwegian krone - rivaled the performance of the trade-weighted dollar. It was up 2.2% year over year. The Swiss franc and euro were down 2.9% and 3.3% respectively in 2016. The Swedish krona did even worse, dropping 7.2%. The British pound ended 2016 17.1% lower. It began its collapse after the BREXIT vote in late June and continued spiraling downward afterwards. The U.S. election didn't seem to have any impact on its value. Along with the Mexican and Argentinean pesos, the pound was one of the weakest tradeable currencies globally.
European Currencies In 2016
Black line U.S. Dollar, Bronze line Norwegian Krone, Orange line Swiss Franc, Red line Euro, Yellow line Swedish Krona, Blue line British Pound
One of the currency bright spots in 2016 were in countries that have commodity-based economies. Unlike almost all other currencies, the Russian ruble actually went up after the U.S. presidential election, rising 21.2% by year's end. It had been strong all year in U.S. dollar terms, so this was not a new trend. The South African rand went mostly sideways and was up 14.4%. The Canadian dollar was barely affected and ended the year up 2.9%, around the same as its neighbor to the south. Only the Australian dollar under performed the trade-weighted U.S. dollar, ending down 0.7%.
Commodity-based Country Currencies In 2016
Black line U.S. Dollar, Bronze line Russian Ruble, Orange line South African Rand, Blue line Canadian Dollar, Red line Australian Dollar
As 2017 began, the U.S. dollar was weakening in the first few trading days. After a significant rally during the previous two months, this isn't surprising. As long as the Federal Reserve continues to raise interest rates, while the rest of the world's central banks are dovish, the dollar will continue to remain strong during 2017. The political situation in Europe is an additionally factor that is likely to continue to weigh on currencies there. Economic weakness in China will also weigh in Asia. Conversely, South America, except for the inflation hot spots of Venezuela and Argentina, is likely to have currencies that outperform the U.S. dollar again in 2017. Commodity-based economies, are also likely to be in the winner category. Finally, the biggest direct negative fallout from the U.S. presidential election was Mexico and this should not only continue throughout 2017, but could last well beyond that.
Investors don't always need to open bank accounts in foreign currencies to adjust their cash holdings to take advantage of ups and downs in currency. They can sometimes do so through ETFs and ETNs, which can be bought and sold whenever they wish. For the U.S. dollar, these include: UUP and USDU. A position in the Brazilian real can be taken by purchasing BZF. There are no ETFs/ETNs for the Columbian or Chilean Peso, South African Rand or the Russian Ruble. Everbank does offer online bank accounts denominated in rands or rubles, however.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.