The U.S. dollar surged in 2015, strengthened by the long-expected interest rate hike by the Federal Reserve. At the same time, many central banks around the world weakened their own currencies, in part to stimulate export growth. As a result of these and other trends, many leading economies saw their currencies decline against the dollar as a benchmark.
Global macroeconomic events as well as local economic challenges can weaken the value one currency in relation to another currency. For example, rampant inflation drastically affects consumers' ability to buy goods for a consistent price and devalues their savings. Falling prices of a certain commodity (most commodities are priced in the U.S. dollar) affect a nation’s currency if the commodity is one of its primary exports.
This article provides a breakdown of the seven of the worst-performing currencies of 2015 as measured against the U.S. dollar.
How Currencies Performed in 2015
New Zealand Dollar: In 2015, a downturn in commodity prices and economic data pushed the New Zealand dollar down 12.21% against the U.S. dollar. The poor fate of the New Zealand dollar can be attributed to a sharp decline in dairy prices. In 2014, dairy products comprised 28.5% of the top 20 commodity exports from the New Zealand market, according the the country’s most recent trade data.
South African Rand: In 2015, the currency of South Africa has declined by 32.31% against the U.S. dollar thanks to declining commodity prices and exposure to slowing growth in the Chinese economy. South Africa is the most industrialized nation in Africa, but it relies on China as its top export destination. While economic growth has been stifled, the country is also experiencing a bout of inflationary pressures. For 2015, inflation levels rose to 4.7%. In November 2015, South Africa's central bank raised interest rates to counter fears of inflation. According to the Financial Times, stagflation (a combination of inflation, low economic growth and high unemployment) has gripped the nation’s economy. But most importantly, the country is a primary exporter of hard assets like gold, platinum and iron alloys and this year saw a steep decline in prices for these commodities. For example, 18.5% of the nation’s exports are in gold, according to the country’s most recent trade data. Meanwhile, gold prices have declined more than 10% year-to-date. (For more, read, "How The United States Has Backed Commodity Exporters Into A Corner.")
Norwegian Krone: A slump in oil prices has hammered the national currency of Norway, as the country relies significantly on crude exports to finance its government. Norway’s export volume in crude oil is massive, suggesting a troubling level of specialization to its economy and great vulnerability to falling crude prices. According to the nation’s most recent trade volumes, the nation exported roughly $94.18 billion in oil and mineral fuels, which represented roughly 64.42% of its total exports for the year. Meanwhile, the krone is down 17.48% for the year against the U.S. dollar.
Russian Ruble: The Russian economy continues to struggle due to ongoing sanctions against many financial leaders in the country and the nation's lack of economic diversity. The Russian economy is heavily dependent on oil-and-gas exports, and these commodities account for more than 50% of the nation's social budget. Declining oil-and-gas prices have pummeled the ruble this year. To date, the ruble is off 18.03% against the greenback in 2015. Further challenges lie ahead for the Russian economy. The nation had prepared its 2016 budget with expectations of $50 per barrel prices. However, as Brent crude hovers below $40, the country's Economic Development Minister Aleksey Ulyukaev says that the new budget will be revised to include a $40-per-barrel estimate. While that figure is unlikely to foster economic instability, Ulyukaev says that it will prevent the nation's gross domestic product from turning positive in the year ahead. It will also mean further suppression on the ruble in 2016 against the dollar.
Canadian Dollar: The Canadian dollar slipped to an 11-year low in September 2015 as weakening oil prices weighed down the global commodity-producing nation. For the year, the Canadian dollar is down 19.49% against the U.S. dollar. The currency’s downturn is linked directly to the fact that oil and related petroleum products are the country’s chief export. Crude oil exports comprise 18% of Canada's $439 billion exports. In addition, refined petroleum comprises 4.2% and petroleum gas (2.9%). Mineral products represent $130 billion or 29.6% of its total export levels. (For more, read "How & Why Oil Impacts The Canadian Dollar (CAD).")
Australian Dollar: The Australian economy is another financial powerhouse that is heavily dependent on commodity exports. But unlike Canada, which relies heavily on petrochemical products, Australia's economy is boosted by the exports of metals and agricultural products. This includes iron ore, gold, wool, alumina, wheat and the machinery needed to produce and refine these commodities. Australia is also closely tied to the economic growth of China, which is its largest export market. The combined cool down in commodity prices and news that China's economy is growing at a lower rate than its expected benchmark has weighed down the nation's exports, and thus its currency. In 2015, the Aussie dollar is off 11.01% against the U.S. dollar.
Brazilian Real: Brazil’s economy was once expected to evolve into one of the world’s most advanced and industrialized economies. But the nation’s continued reliance on resource development and a lack of political reform fueled conditions that produced a sharp economic downturn and falling national currency. Falling oil and other commodity prices have dampened the nation’s long-term outlook. The nation’s currency, the real, is off 47.40% against the U.S. dollar, and inflation is above 6% on the year. (For more, read, "Brazilian Real Hits 20 Year Low.")
The Bottom Line
The U.S. dollar has seen remarkable strength in 2015 as investors around the world flocked to the greenback for security. An expected interest rate hike by the Federal Reserve complemented by greater stimulus measures by other central banks around the world have sent the dollar soaring against rival currencies. Looking forward, the dollar is expected to experience more gains as the Federal Reserve moves toward rate normalization in the coming years
