Assorted marketplace wizards around the globe for many years have praised past and predicted future stellar (or at least rather robust) growth for key emerging and developing nations. These countries not only display cultural diversity. They also manifest a significant range in economic development, arrangements, focus, and strengths. Though many embrace democracy to some extent, their political characteristics and stability are far from uniform. Despite this variety, the popular BRIC acronym, standing for Brazil, Russia, India, and China (now including South Africa), coined by Goldman Sachs nearly 15 years ago, acts as a rough shorthand summary for much if not all of the emerging/developing nation group.
Marketplace history of course need not entirely or even substantially repeat itself. However, the recent appreciation of the United States broad real trade-weighted dollar (“TWD”) warns of erosion in global economic output rates.
The TWD established a major bottom at 84.2 in April 2008 (Federal Reserve Board, H.10; monthly average, March 1973=100). After climbing to 86.7 in August 2008 and 88.8 in September 2008, it bounded to over 93.8 in October 2008. Recall the noteworthy acceleration of the worldwide financial crisis after mid-September/October 2008. Its March 2009 pinnacle around 96.9 represented a 15.1 percent bull advance relative to April 2008.
After deteriorating to its major trough around 80.5 in July 2011, the TWD meandered sideways within a narrow range for about the next three years. Its high over that span was June 2012’s 86.3. Yet in recent months, as it did beginning in April 2008, the broad real trade-weighted dollar has marched steadily higher. A five percent bull move in the TWD from its July 2011 trough at 80.5 equals about 84.5, a ten percent climb about 88.6. A fifteen pc rally gives 92.6, a 20pc leap about 96.6.
September 2014’s 86.6 broke through June 2012’s barrier, with December 2014’s attaining 90.5. January 2015’s 92.4 rose 2.1 percent over December 2014. The TWD’s 14.8 percent ascent from the July 2011 depth rivals its April 2008 to March 2009 move. Significantly, its January 2015 level neighbors that of October 2008 and is not too distant from March 2009’s 96.9 elevation.
What do FX movements (trade-weighted, effective exchange rates) within the BRICS universe reveal nowadays? Their recent travels differ to some extent from the 2007-09 crisis adventures. However, as during the darker days of the worldwide economic disaster, the current currency voyages of Brazil, Russia, India, and South Africa generally display depreciation. As in the earlier period, however, China’s currency has rallied recently on an effective exchange rate basis. Looking forward, these currency patterns alongside TWD strength do not merely confirm the TWD bull move, but also emphasize the likelihood of further slowing of global real GDP.
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Crumbling BRICS- a Currency Perspective (2-11-15)