The year 2011 was a year of economic uncertainty for the financial markets the world over, especially the eurozone. With its deepening financial crisis, the euro has lost value rapidly. Another currency, the Brazilian real, which was everyone's favorite in 2010, dropped significantly in 2011. With strong expectations, investors have been pouring their money into the U.S. dollar and the Japanese yen; since the beginning of the year, the yen has risen by 6% and is expected to remain bullish in 2012. In this article, we will take a look at six currencies that are expected to do well in the year 2012, based on research from Morgan Stanley.
U.S. Dollar
At the beginning of the year, the USD/EUR was around 0.76. The dollar then weakened against the euro, and was at a low of 0.68 in the first week of May. Since then, the dollar has been strengthening as the crisis in the euro deepens. The U.S. dollar is expected to continue to strengthen in the year 2012, against all G10 currencies except the Japanese yen. The U.S. dollar has been the biggest beneficiary of the crisis in the eurozone, and will continue to be, unless there is some resolution in sight.
Japanese Yen
Even though the Japanese yen has a huge sovereign debt problem, with the country's current debt-to-GDP ratio standing at 200% it is considered to be the best safe-haven currency. This is because Japan is funding its own debt, so the demand for bonds is mostly internal. It has had a consistent current account surplus since 1988 and is steadily benefiting from the repatriation flows, as Japanese companies and investors bring funds home. One hurdle in the yen's growth is the intervention by the Bank of Japan; however, this is not going to affect the yen in the long-term.
New Zealand Dollar
New Zealand's banks depend heavily on external funding, which may be difficult to get in a situation of economic stress. The country's private sector is deleveraging and it also has close ties with emerging markets and China. With all of these factors, the New Zealand dollar may depreciate in the short-term, but it will be strong in the long term. New Zealand has an annual GDP growth rate of over 2.5%, and consumer spending is on the rise. In the coming year, there could be a hike in interest rates, and there is a continued demand for New Zealand's agricultural trade.
Mexican Peso
The Mexican peso has been weakening for some time, and because of the global market stress analysts are expecting it to perform well in 2012. Mexico has strong fundamentals, such as low public debt and budget deficit, and has also exhibited steady growth. Mexico has foreign exchange reserves close to $140 billion and ample sources of local finance. Further, the country's central bank's non-intervention to buy USD to defend the peso will make the peso a bullish currency.
Turkish Lira
Analysts are bullish on the lira in the long-term and they expect it to outperform most emerging markets in 2012. This is because Turkey's central bank protects its currency from speculative attacks, and also keeps the interest rates high in the near-term. Even the country's current deficit is declining because of reducing domestic demand, and it has very little exposure to the crisis in eurozone. Analysts are predicting a decline in the lira's value in the beginning of the year, but they are bullish on it in the long run, especially compared to others in the region.
Russian Ruble
The Russian ruble is also expected to be a strong performer in 2012. The biggest reason for the ruble's bullish trend is the country's central bank policy, as Russia's leaders are expected to relax the exchange rate controls in 2012. The Russian economy is also expected to grow and expand by at least 5% in the coming year. The currency will face upside pressure emanating from renewed geo-political tensions in oil-producing nations.
The Bottom Line
These are the currencies that are expected to rise in 2012. Other currencies, such as the euro, pound sterling, Canadian dollar and Brazilian real, may lose some of their value. Do your research and invest in these currencies to have a rewarding year ahead.
U.S. Dollar
At the beginning of the year, the USD/EUR was around 0.76. The dollar then weakened against the euro, and was at a low of 0.68 in the first week of May. Since then, the dollar has been strengthening as the crisis in the euro deepens. The U.S. dollar is expected to continue to strengthen in the year 2012, against all G10 currencies except the Japanese yen. The U.S. dollar has been the biggest beneficiary of the crisis in the eurozone, and will continue to be, unless there is some resolution in sight.
Japanese Yen
Even though the Japanese yen has a huge sovereign debt problem, with the country's current debt-to-GDP ratio standing at 200% it is considered to be the best safe-haven currency. This is because Japan is funding its own debt, so the demand for bonds is mostly internal. It has had a consistent current account surplus since 1988 and is steadily benefiting from the repatriation flows, as Japanese companies and investors bring funds home. One hurdle in the yen's growth is the intervention by the Bank of Japan; however, this is not going to affect the yen in the long-term.
New Zealand Dollar
New Zealand's banks depend heavily on external funding, which may be difficult to get in a situation of economic stress. The country's private sector is deleveraging and it also has close ties with emerging markets and China. With all of these factors, the New Zealand dollar may depreciate in the short-term, but it will be strong in the long term. New Zealand has an annual GDP growth rate of over 2.5%, and consumer spending is on the rise. In the coming year, there could be a hike in interest rates, and there is a continued demand for New Zealand's agricultural trade.
Mexican Peso
The Mexican peso has been weakening for some time, and because of the global market stress analysts are expecting it to perform well in 2012. Mexico has strong fundamentals, such as low public debt and budget deficit, and has also exhibited steady growth. Mexico has foreign exchange reserves close to $140 billion and ample sources of local finance. Further, the country's central bank's non-intervention to buy USD to defend the peso will make the peso a bullish currency.
Turkish Lira
Analysts are bullish on the lira in the long-term and they expect it to outperform most emerging markets in 2012. This is because Turkey's central bank protects its currency from speculative attacks, and also keeps the interest rates high in the near-term. Even the country's current deficit is declining because of reducing domestic demand, and it has very little exposure to the crisis in eurozone. Analysts are predicting a decline in the lira's value in the beginning of the year, but they are bullish on it in the long run, especially compared to others in the region.
Russian Ruble
The Russian ruble is also expected to be a strong performer in 2012. The biggest reason for the ruble's bullish trend is the country's central bank policy, as Russia's leaders are expected to relax the exchange rate controls in 2012. The Russian economy is also expected to grow and expand by at least 5% in the coming year. The currency will face upside pressure emanating from renewed geo-political tensions in oil-producing nations.
The Bottom Line
These are the currencies that are expected to rise in 2012. Other currencies, such as the euro, pound sterling, Canadian dollar and Brazilian real, may lose some of their value. Do your research and invest in these currencies to have a rewarding year ahead.
