2009: Around the world in four currencies

A mid the storm of financial and economic crises that dominated the year, many traders were happy to close the door on 2008. Last year’s action in the foreign exchange market was volatile, with fall and winter action driven by massive risk aversion and global position liquidation.

The Japanese yen came out on top of the 2008 carnage, chalking up a 23-percent gain vs. the dollar. The main factor propelling the yen was a massive exit out of carry trades, which sparked doubledigit losses in many of the high yielding currencies that were the on the long side of this popular trade. The Australian dollar (AUD) dropped 21 percent vs. the dollar through Dec. 30, the New Zealand dollar (NZD) declined 25 percent, the Brazilian real plunged 24 percent, the Mexican peso sank 22 percent and the South African rand (ZAR) plummeted 27 percent.

The British pound (GBP), which posted a dismal 27.3 percent drop vs. the U.S. dollar as of Dec. 30, was the weakest of the most liquid currencies, according to John Rothfield, senior currency analyst at Bank of America. He says Britain’s paper suffered especially because its economy is so reliant on the financial and housing sectors.

The most positive performers, Rothfield adds, were the low-yielding currencies pointing to the yen and the Swiss franc, which gained 7 percent vs. the dollar.