Australian Dollar (AUD) Pulled Lower by China’s ‘Zero Covid’ Approach
The Australian Dollar (AUD) trended broadly lower over the past year. The losses for the ‘Aussie’ were largely down to the country’s ties to China. The world’s second-largest economy saw a drastic downturn throughout 2022 as the country’s ‘zero Covid’ policies continued to dent economic growth. China strengthened many of its lockdown measures in April which added to AUD’s woes.
Soaring inflation and its impact on the Australian economy also contributed to the Australian Dollar’s losses in the latter half of 2022. Inflation hit a record-high of 7.3% in September. Private sector growth fell into contraction in November, whilst retail sales posted their first annual decline of the year in 2022.
The high inflation did prompt the Reserve Bank of Australia (RBA) to raise interest rates to 3.1% by year’s end. This path of policy tightening limited more drastic losses for the Aussie.
The Australian Dollar also benefitted from a change in China’s Covid policy at the end of 2022. China scaled back the majority of its Covid-19 restrictions, lending some support to AUD.
New Zealand Dollar (NZD) Sees Losses Limited by Hawkish RBNZ
The New Zealand Dollar (NZD) fell against its peers throughout 2022. The ‘Kiwi’ suffered due to its positive correlation to the Australian Dollar as well as unstable commodities prices. Poor performance in the country’s domestic currency also weighed on the currency, as business confidence slumped in the face of high inflation. Strong third quarter growth figures helped NZD to recover some of its losses, however.
A surprisingly hawkish path of policy tightening from the Reserve Bank of New Zealand (RBNZ) limited helped to limit losses for the New Zealand Dollar, however. The central bank raised interest rates to their highest level in over a decade.
Pound (GBP) Plummets as UK Become Worst-Performing G7 Member
The Pound tumbled this year amid a year of political turmoil and economic uncertainty. The UK saw three Prime Ministers over the course of 2022 following Boris Johnson’s resignation. Liz Truss’s premiership being followed in short order by Rishi Sunak.
Truss’s ill-fated mini-budget proved to be particularly painful for the Pound. The unfunded tax cuts spooking investors and sending Sterling plunging to a record low against the US Dollar.
The transition between the three leaders added to the Pound’s woes amid a cost-of-living crisis that dented confidence in Sterling. Higher energy prices in the second half of the year and soaring inflation severely dented household spending.
While the Bank of England (BoE) continued to hike interest rates throughout 2022 in an attempt to curb soaring inflation. The hikes added to fears of an impending recession, particularly after the BoE itself warned the UK may be facing its longest downturn on record.
Euro (EUR) Struggles after Russia Invades Ukraine
The Euro took a drastic hit in February 2022 as Russia initiated its invasion of Ukraine. The conflict prompted sharp losses in the single currency amid concerns over the impact it would have on the Eurozone economy.
The conflict also led to further losses for the Euro in September after Russian supplier Gazprom halted the flow of natural gas through its Nord Stream 1 pipeline. The pipe’s shutdown led to fears of a winter energy crisis across the Eurozone.
A hawkish pivot from the European Central Bank (ECB) provided support to the Euro through the second half of 2022. After some initial reluctance to join its peers in tightening its policy. The latter half of the year saw several aggressive hikes from the ECB, with policymakers promising that more were to come.
US Dollar (USD) Soars amid Global Uncertainty and Hawkish Fed
The US Dollar (USD) made strong gains against its rivals over the course of the past year. USD benefitted from a notably hawkish stance from the Federal Reserve.
The Fed maintained a consistently hawkish path of interest rate hikes throughout 2022, raising its interest rate to the highest level in 15 years. Fed Chair Jerome Powell consistently signalled that the central bank would continue to keep rates high until 2024.
The safe-haven ‘Greenback’ also benefitted from the geopolitical and economic uncertainty seen in 2022. Russia’s invasion of Ukraine and fears of a global recession saw investors flock to the safe-haven currency.
Canadian Dollar (CAD) Rises and Falls amid Oil Price Volatility
The Canadian Dollar (CAD) enjoyed strong support through the first half of the year. The commodity-linked currency rose in tandem with oil prices following Russia’s invasion of Ukraine.
However the ‘Loonie’ then faced headwinds around the middle of the year after crude prices began to retreat again as recession fears and a slowdown in Chinese economic activity began to weigh on forecasts for global demand.
Six interest rate hikes from the Bank of Canada (BoC) over the course of the year lent some support to the Canadian Dollar. But the BoC then began to slow the pace of these hikes toward the end of 2022, further robbing the Canadian Dollar of support in the second half of the year.