From Donald Trump’s election to a failed coup attempt in Turkey, there have been plenty of political events to stoke volatility in the forex markets.
Indeed of the top most volatile FX pairs the consistent theme is political uncertainty, muddy economic data and a sliding US dollar throughout 2017 that has combined to produce bigger-than-usual moves in some currency pairs. This was the case a year ago when we saw some wild moves in GBP thanks to Brexit.
Over the last 12 months, these are the most volatile currency pairs in forex trading.
South Africa’s rand has been on a wild ride as it’s been subject to the shifting sands of investor sentiment amid a fairly traumatic 12 months for the economy and the government. Popular and respected finance minister Pravin Gordhan was sacked in March, a move that spooked investors and pushed the rand lower. Fitch became the latest ratings agency to downgrade South African debt to junk and a new mining charter unsettled investors.
Despite all these setbacks, the rand has actually risen over the last 12 months against the US dollar, extending the trend higher ever since the January 2016 flash crash. All that has made for a volatile currency pair with an average daily range of 1.79%.
The next most volatile currency over the last 12 months was the Mexican peso, which is hardly surprising given the uncertainty that Donald Trump’s election win unleased, particularly with regards to the Mexican economy, the building of a wall on its US border and moves to renegotiate Nafta.
Mexico’s peso sunk to all-time lows on Trump’s election and in the run-up to his inauguration in January. Since then it, like other emerging market currencies, has bounced back as the greenback has edged lower throughout the year.
USDMXN has a volatility value of 1.39%, although this has been coming down fast in recent weeks with less to rock the Mexico-US boat of late. For comparison, volatility over the last ten weeks is just 0.9%.
A failed coup is just one of many factors that have rocked investor sentiment in Turkey and as a result, the Turkish lira. The latest twist this week involves a diplomatic spat and the suspension of visa processing between the US and Turkey. This saw the lira plunge more than 6% overnight before paring losses to just 2%. But this is just the last in a string of geopolitical events that has meant USDTRY is the third most volatile pairing of the last 12 months with an average daily range of 1.27%.
Political uncertainty is again the defining factor for the Brazilian real. The litany of corruption scandals over the last few months, combined with a bounce back in the economy has left the currency very volatile. USDBRL has traded in an average daily range of 1.23%.
The only pair in last year’s top five to remain has traded in a range of 1.09% over the last 12 months. GBPNZD is a historically volatile pair since the pair is relatively illiquid. The two currencies are the lesser components of two highly liquid pairs – GBPUSD and NZDUSD. As such the swings in this pairing are down to the moves in the US dollar, which tends to mean higher volatile as a general rule of thumb.
Special mention: Bitcoin
Is it a currency, a commodity or something else? Either way, Bitcoin trading now comes under the wider forex trading umbrella as its popularity grows. If we were to include BTC in the list it would top it, with a 3% average daily range. To be honest, it’s a surprise it is not more volatile than this and is perhaps an indication that higher trading volumes is leading to strong liquidity that keeps pricing more predictable.