Currencies to watch in Q1 2016 - Intro

Every publisher talks about the relationship between EURO/USD; the reality is that most companies have business in Asia or South America, and the finance team wants to know what’s happening there and what they can expect in terms of currency fluctuations.
— Natasha Lala, MD, OANDA Solutions for Business

After a long period of relative calm, foreign exchange markets were hit by some severe turbulence in 2015 as markets reacted to a series of surprise moves by major central banks. Natasha Lala, Managing Director at OANDA Solutions for Business explains why she believes high volatility is here to stay in 2016, before isolating five currencies she says treasurers will need to keep an eye on over the next few months.

Corporate treasurers are no strangers to restless currency markets and the problems they can create for cash management and accounting. But few treasurers could have anticipated the turbulence that 2015 brought to the table.

The jolts began early in the calendar year, with the Swiss National Bank’s surprise decision on 15thJanuary to unpeg the franc from an artificial cap against the euro, unleashing waves of volatility into global currency markets. As 2015 progressed, former emerging market darlings became the epicenter for currency market tumult. China unveiled its own surprise devaluation of the once tightly-controlled yuan in August. A depressed economic outlook coupled with sinking commodity prices and political troubles sank the Brazilian real. Other currencies tied to commodities followed.

With economic prospects remaining flat for many emerging markets and reactive monetary policies on the horizon, high volatility will likely continue to plague currency markets in early 2016. And that’s bad news for corporate finance departments.

Beyond the impact on revenues, volatility compromises the integrity of currency rates that treasury professionals rely on for accounting, forecasting, reconciling balance sheets and so on. The accuracy of these rates is already challenged by the over-the-counter nature of foreign exchange (FX), which means that rate providers offer data based on their own estimates, not what’s actually happening in the wider marketplace. Volatility further increases the likelihood that rates are obsolete by the time they hit the treasurer’s desk.

Based on these factors – namely economic outlook, volatility and difficulty in sourcing accurate rates – we have identified five currencies that may prove to be particularly tricky for corporate finance departments in Q1 2016:

Turkish lira, Russian ruble, Brazilian real, Chinese Yuan and Malaysian ringgit.

We'll be posting in depth analysis over the next few weeks, to provide insights on macro-economic trends and how they will impact these currencies and your business. You can also get a free copy of the currency by contacting us at the link below.