Data Point. The year of the dollar

Major currencies, with the exception of a few such as the yen, began 2014 on a positive note. But half way through the year, many lost strength as their economies lost steam. It left one currency to tower high over the others — the US dollar.

A strong recovery in the US economy, helped the dollar gain ground and move higher against major rivals. That said, most major currencies are trading near important as well as long-term supports. This points toward the dollar losing strengthin 2015.

The Japanese yen was the worst performer against the US dollar for the second consecutive year. After tumbling over 17 per cent in 2013, the currency consolidated in a narrow range just above the psychological 100 level until July.

However, the yen lost steam thereafter and is down another 12.5 per cent this year. The government’s decision to raise the sales tax for the first time in 17 years from 5 per cent to 8 per cent pushed the country into a recession in the July-September quarter. The yen is expected to decline further to 123 in early 2015. This is a key support level and a reversal from here will take the yen higher toward 110.

The euro, which gained 4.2 per cent against the dollar in 2013, ended up as the second-worst performer of 2014 — it is down 11.4 per cent. The currency was up 1.8 per cent in May, when it tested 1.4 levels, but reversed lower when the European Central Bank surprised the market with a 10 basis points (bps) rate cut to 0.15 per cent. This reversal intensified as the ECB lowered the interest rate to a record low of 0.05 per cent. The euro has declined below its key long-term support at 1.2235 and could decline to 1.21 in the near term. A strong breach above 1.225 could take it higher to 1.285 in 2015.

Pound

The British pound’s story was one of riches to rags – it had a very good first half this year, but is now 6 per cent lower against the dollar. The currency seemed so infallible that when most major currencies started reversing lower, the pound extended its rally until July to record a high of 1.7191.

This was thanks to speculation that the Bank of England would start its rate hike cycle ahead of the US Fed. But rate hike hopes were smashed by the continuous fall in inflation — the consumer price index as of November is at a 12-year low of 1 per cent.

The pound has some support in the 1.55-1.54 range. A break below 1.54 could drag it further down to 1.51 and 1.50 next year. But a reversal from 1.54 could take the currency higher to 1.60.

The Australian dollar, although down 8.9 per cent against the US dollar this year, fared better than in 2013, when it lost 14 per cent. A sharp fall in commodity prices, especially iron ore and gold, kept the currency under pressure. Being the biggest trade partner of China, which was hit by a slowdown, did not help either.

The Australian dollar has important supports near current levels at 0.8 and at 0.7945. A reversal could take the currency higher to 0.825. But the outlook will turn bullish only after a strong break above this level. A break below 0.7945 could drag it down towards 0.7775.

Other major currencies, the Swiss franc and the Canadian dollar, are down 9.6 per cent and 8.6 per cent, respectively, against the dollar. While the slowdown in Europe has hit the franc, a sharp fall in oil prices is impacting the Canadian dollar. The Swiss franc can fall further to 1.01 now, but reverse higher to 0.95 levels in 2015. There is no sign of any reversal in the near term for the Canadian dollar and it could fall to 1.20 levels next year.

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