The USD is getting weaker, pressured by the new crisis in US-China relations over Hong Kong, falling Treasury yields and the wave of mass protests. As a result, many foreign currencies are finally getting a chance to shine – including some you wouldn’t expect to rally so soon. Here is Capital.com’s list of the four best forex pairs to trade this June.
NOK: Norwegian krone – the best currency to short the dollar?
In March, the krone plummeted together with oil prices (Norway is the 15th-largest oil producer). From $0.11469 on January 1, NOK was down to $0.08467 in late March.
However, Norway managed to get through the epidemic without expanding its national debt too much. Moreover, thanks to the strict lockdown, the number of deaths was kept to just 236. With only 27 people in hospital with Covid-19 by June 1, the country announced a timetable for lifting the lockdown. However, many restrictions will remain in place until autumn, minimising the risk of a second wave of infections.
To this we should add the remarkable recovery of oil prices. Brent crude – the type of oil exported by Norway – went up 65 per cent from $21.44 on April 20 to $35.33 on June 1.
With a stable epidemiological situation, a robust healthcare system and rising price of oil, Norway is in a very good position to benefit from the increased appetite for foreign currencies. In fact, Goldman Sachs chose NOK for its short positions against the dollar. Savvy investors would do well to add it to their June portfolio.
AUD: Australian dollar – it’s all about iron
The Aussie dollar’s current rally has a clear catalyst: the surge in the price of iron ore. Australia exports more than 53 per cent of the world’s iron ore, followed by Brazil and South Africa.
In the past few months, the demand for steel from auto makers and other industries fell rapidly, causing the price to decrease from circa $94 a ton in early January to $82.50 in late April. Since iron ore accounts for 16 per cent of Australia’s exports, AUD took a big hit.
Luckily, Chinese industrial operations recovered faster than anyone expected and the demand for steel is rising again. At the same time, the worsening situation in Brazil means that it won’t be able to ship the expected amount of ore this year. Its place will likely be taken by Australia, where the epidemic is mostly over.
As the price of iron ore grew by 6.5 per cent in May, AUD gained 4.3 per cent and is likely to grow even more.
The only cause for concern is a potential deterioration in Chinese-Australian relations. Australia has called for an investigation into how China had handled the early stages of the Covid-19 outbreak. In retaliation, China announced it would introduce harsher inspection rules for the iron imported from Australia. However, unless the situation turns into a new tariff war, AUD could show very good results in June 2020.
ZAR: South African rand – the true ‘dark horse’ among the best currencies to invest in
The rand has had a very tough couple of months. The Covid-19 outbreak in South Africa is entering the most dangerous stage, with a rising number of new cases and not nearly enough testing. In one of the world’s most severe lockdowns a lot of the country’s famous mines had to close, and millions are facing hunger. The central bank announced a massive programme of quantitative easing.
In short: a bad epidemiological situation, industrial stoppages and low interest rates – all this didn’t promise anything good for ZAR. The lowest point was reached on April 6, with 19.26 ZAR for 1 USD.
However, starting in mid-May, ZAR suddenly started to rally against USD. From 18.58, it strengthened to 17.59 on June 1 – an impressive 5.6 per cent rise in just two weeks.
This caught most traders by surprise, even though there are quite a we supporting factors:
- Increased appetite for risk as the pandemic in the West seems to be waning;
- An announcement by the central bank that it isn’t planning any more easing;
- A rise in demand for national debt;
- Easing of the lockdown: the mines are reopening.
- If ZAR manages to break through the resistance at 17.24, it could go up all the way to 16.50 and higher. Considering that the rand began 2020 at 14 ZAR for a dollar, there’s ample space for growth.
EUR: the euro – finally turning bullish
After months and even years of bear rule, bulls seem to be taking over in EUR/USD. In the final week of May, the euro gained 1.7 per cent.
The short-term prospects for USD don’t look very promising. The US government has to face chaos in the streets, high Covid-19 death rates, a serious risk of a new wave of post-lockdown infections and the new tensions with China.
At the same time, European countries are preparing to reopen their internal borders, and the ECB recently announced a new $825bn rescue package, called Next Generation EU. This money will come from loans and grants and can be paid back within 30 years using sources such as carbon tax and a tax on non-recycled plastics.
What is driving the growth in EUR/USD is both the improving outlook in Europe and the hardship in the US. Come September, the situation can get reversed but for now the euro does seem like one of the top currencies to invest in.
As Europe and Asia slowly restart their economic engines, the US dollar doesn’t look as attractive as it did a couple of months ago. A good way to identify the best forex pairs to trade is to look at each country’s fundamentals: its industries, exports, mineral resources and its epidemiological conditions. Investors are more willing to invest in risky currencies and whoever manages to recover from the pandemic first will get the best chance against the USD. For more on investing in the forex market, see our basic guide.