Monetary policy adjustments will be the driving force for FX going forward – Month in Review: November 2021
Macroeconomic Environment Review
The Dollar was the winner of 2021, appreciating 6.9% year-to-end of November versus the other major currencies and 11% versus EM currencies. However, Dollar’s performance was mixed both over time as well as versus individual currencies. The greenback rallied in late February and March while the US-led in the deployment of vaccines and many other economies struggled with lockdowns. In April and May, however, the Dollar lost all prior gains as vaccination in other countries accelerated. The US currency only started to appreciate consistently after the hawkish Fed turn in June.
In the end, Corona did not derail the global recovery, but it was still a disruptive force. The Delta variant depressed sentiment and delayed reopenings to varying degrees across countries. This was compounded by the supply-side problems which resulted from stronger goods demand and lagging production and shipping capacities. It is still unclear how the new Omicron variant will play out. Corona will remain a risk factor but we are convinced that the pandemic will gradually become endemic and social and economic activity will increasingly decouple from the virus dynamic.
The different speeds of monetary policy adjustments are likely to be a key driver of FX movements among major currencies in 2022. We believe that the US Dollar has generally more upside than downside potential given the outlook on Fed policy. On the other hand, the Euro will lack monetary support as the ECB is likely to be reluctant to tighten policy soon. However, the Single currency also has some support and upside potential. The main support comes from the current account surplus. Elsewhere, Sterling is caught between economic downside risk (ie. the late impact of BREXIT) and inflation upside risk (energy, housing and labor). What the BoE will do with the dilemma is probably a muddle, which is not helpful for the GBP, especially given a still sizeable current account deficit. The Australian Dollar and the Canadian Dollar have the most potential to keep up with the Dollar or even exceed it. Both economies are recovering well from the Corona downturn. The BoC and the RBA have no reason to drag their feet and both countries have managed to become current account surplus economies.
Monthly Performance Review
During the month of November 2021, AENAON Syncro Strategies generated the following total returns net of fees:
Across the spectrum of our benchmark indices, our strategies’ performance during November was rather positive. As a comparison, the US S&P 500 equities index lost -0.83%, the Barclay Hedge Fund Index posted a -1.36% downtick, the Barclay CTA Index declined -1.22% while the other benchmark indices can be seen on the chart below.
Chart 1: Monthly Performance vs. Benchmark Indices – November 2021
Charts 2, 3 and 4: Inception to Date Performance vs. Benchmark Indices
You can always review AENAON Syncro Currencies’ updated factsheet at our Fundpeak link, with monthly performance updates and statistics since inception.