It is difficult to tell what role the Dollar will play in the global financial system heading into the second quarter of 2022. On the one hand, traditional risk assets have held back the tide of a more prolific collapse while interest rate expectations have exploded higher.
The Australian Dollar made an 18-month low in January, eclipsing the November 2020 nadir of 0.6991 by a small margin.
Q1 hasn’t been easy for investors. In fact, the stock market had one of its worst starts to a year in history, rivaled by the GFC and great depression. Of course, Bitcoin as a high beta asset hasn’t been immune to the drop in stocks, falling over 13% (at the time of writing) from three months ago.
A volatile first quarter for US equities, which grappled with not only an inflation-fighting Federal Reserve but also increased geopolitical tensions.
The Euro suffered punishing losses in the first quarter of 2022. The currency is on pace to shed almost 3 percent against an average of its major counterparts, marking the worst three-month performance in 7 years.
The Bank of England (BoE) is expected to raise UK interest rates further in the second quarter of 2022 as the UK central bank tries to stem soaring prices pressures. The BoE has already lifted the Bank Rate to 0.75% from 0.1% in late 2021 and money markets are currently pricing in 125 basis points of additional rate hikes this year.
There’s no two-ways about it: gold prices outperformed our expectations in Q1 22. Our rationale for not taking a bullish outlook on gold was, and still is, well-grounded: central banks, including the Federal Reserve, have begun to winddown pandemic-era stimulus efforts, with rate hike cycles just getting started.
The anti-risk Japanese Yen put in a dismal performance during the first quarter of 2022, particularly as March wrapped up. A majors-based Japanese Yen Index that averages JPY against USD, AUD, GBP and EUR fell as the S&P 500 and 10-year Treasury yield climbed.
The price of oil spiked to a fresh yearly high ($130.50) in March amid the disruptions caused by the Russia-Ukraine war. Current market conditions may lead to higher crude prices as expectations for strong demand are met with indications of limited supply.
The Australian dollar has been one of the most resilient currencies against the dollar through Q1 2022, primarily via the broad commodity price rally and strong trade relations with China.
Global indices experienced serious volatility through Q1 2022, disrupting otherwise-extraordinary bullish – or generally buoyant – trends.
To explain the euro’s recent behavior, it is important to provide some historical context.
There was a quick flicker of excitement in Gold last quarter, and that ran parallel to the same fear that was injected into the global order as Russia invaded Ukraine.
The Japanese Yen approached the first quarter of the year with a huge loss north of 5%, with much of that move occurring in March when USD/JPY rose above the high-profile, psychological 120 level.
In Q1, crude oil prices continued the long-term bullish trend that began after WTI futures briefly spiked into negative territory in 2020. The US benchmark traded within a neat pitchfork throughout 2021, registering multiple bounces within its confines.
The Greenback set a swing high on the final day of Q1 2021 trade before reversing through the first half of Q2, eventually finding support around the same 90 psychological level that had held the lows earlier in the year. But after bulls got back in the driver’s seat in June, a bullish trend began to develop that remains in effect today.
Bitcoin sold off hard during Q4, but then during the first frame of 2022 it underwent a period of relatively directionless trading. Contracting price action over the last three months could continue to make things even choppier in the near-term.