The fourth quarter of 2013 proved one of the most eventful for currency volatility as the value of emerging market currencies sagged, according to FiREapps.
The group’s just-issued ‘2013 Q4 Currency Impact Report’ is again based on analysis of 846 publicly-traded US companies that have at least 15% or more international revenues in at least two currencies.
FiREapps reports that 196 of these companies reported material negative currency impacts in Q413, a 4.4% decrease over Q3 and a 7% decrease over the 2012 average. For the entire year, the total reported negative impact was US$17.8bn.
A total of 58 companies reported positive currency impacts in Q413, meaning that the net quarterly impact from currency volatility totalled US$5.83bn in losses – a 39% increase over Q3 and the highest quarterly total in 2013. The total was only surpassed by Q212 and Q312, when the eurozone crisis was at its height.
The top five ‘currency culprits’ during Q413, or those currencies reported as most impactful, featured some usual suspects, including the Brazilian real (BRL) and Japanese yen (JPY). While the Canadian dollar (CAD) made a surprise addition to the top five, for the first time ever the euro (EUR) was not on the list.
“Despite the fact that the crisis in the eurozone is far from resolved, the euro has been stable against the US dollar (trading in the tightest range it has traded in over a decade) and, as such, did not deliver in 2013 the kind of negative currency impacts it did in 2012,” FiREapps commented.
The group also said that ‘it came as a big surprise’ that the CAD tied for first place with the BRL in most mentioned currency impacts during Q413. While the change in the US dollar/Canadian dollar (USD/CAD) exchange rate was less than 4%, a quick adjustment towards the end of the quarter appears to have caught a number of corporates off-guard – resulting in a significant jump in the number of companies disclosing CAD impacts.
“More than an underlying market story, this represents a currency cycle,” said FiREapps. “Relative to the USD, the CAD appears to be moving through a typical cyclical movement. The exchange rate hovered around parity in 2011 and 2012 but since then the USD has strengthened against the CAD.
“The USD strengthening gained speed in late 2013 – hence the fourth quarter impacts. But relative to where the USD/CAD has been, we could still see more strengthening of the USD relative to the CAD – and more fourth quarter-like impacts on companies that are not prepared.”
Figure 1: Companies Reporting Negative Currency Impact
Figure 2: Size of Reported Negative Currency Impact
Figure 3: Currency Culprits – The 5 Currencies Most Mentioned in Earnings Calls as Impactful (# Companies Mentioning)
Table 1: Currency Culprits – The 5 Currencies Most Mentioned in Earnings Calls as Impactful (# Companies Mentioning)
Figure 4: US Dollar/Canadian Dollar Exchange Rate Jan 2009-Feb 2014
Figure 5: Emerging Market Exchange Rates Against US Dollar Oct 2013-Feb 2014
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