Volatility and Opportunity – VBCE’s 2022 Market Review and 2023 Outlook
December 30, 2022
As VBCE looks ahead to 2023 we would be remiss to not look back at one of the most volatile years in the currency exchange and precious metals markets we’ve seen in our 30+ years in business.
VBCE Traders specialize in foreign exchange and gold and silver trading, so we asked them to share their thoughts regarding 2022 as well as their opinion on what’s to come in 2023.
We have a wide set of industries our Traders and Retail Customer Service Representatives support as well as individual customers whether exchanging online or through our VBCE Online platform and we wanted to share how our customers were able to take advantage of the volatility.
Seasoned VBCE Traders Steve Brown, Garo Mavyan, Pandu Vitharana, and Jeffrey Wong shared their expertise in our annual look back at 2022 and a look forward to 2023.
How would you summarize 2022 as a FX and Precious Metals Trader?
It looks like volatility was a key word we saw through the year. We saw historic highs and lows including:
- EURCAD trades to lowest level in 10 years before climbing to a 14 month high
- GBPCAD trades near historical lows before climbing to a 9 month high
- JPYCAD trades towards a 15 year low before climbing to a 10 month high
- AUDCAD trades towards historical lows before climbing to a 9 month high
In asking how our traders would summarize 2022 we heard a few different points of view.
Garo Mavyan shares “2022 was another year marked by unpredictability and surprise in the markets. Many new challenges were faced by the market this year from record-high inflation in the major world economies to geopolitical crisis, particularly in Europe with the Russia-Ukraine conflict” and Pandu Vitharana adds “The 2022 FX markets were marked by volatility, geopolitics, inflation … and the continued resilience of the American dollar.”
Steve Brown reflects that “this past year saw both the CAD and USD surge to multi-year highs against most major currencies. The primary driver was inflation induced central bank tightening that effectively took Canadian interest rates from 0.25% up to 4.25% and U.S. interest rates from 0% up to 4.50%. However the trend quickly changed about mid-November with data in Canada and the U.S. confirming that inflation had peaked and that interest rate hikes had been effective in slowing the Canadian and U.S. economies. The USD index along with the CAD subsequently dropped sharply against most major currencies.”
What was the most surprising market change you saw this year?
VBCE trades over 5 billion dollars per year so our experienced Traders are on the frontline of market swings. We asked what the most surprising market change the traders saw this year with two different insights – one focused from a Canadian point of view, and the other a more international view.
“I would have to say the monster interest rate increases by central banks to tackle inflation, particularly by the US Fed and Bank of Canada. Though rate increases were expected by most traders, I was really surprised by just how aggressive these two banks have been in trying to tackle the inflation in their respective countries.” reports Mavyan.
Vitharana shares “2022 was a tough year for most, especially for those living in armed conflict areas of Eastern Europe and Northern Africa. Residents of these areas have also experienced harsher economic conditions that resulted in devaluation of their currency. The degree of their local currency devaluation has resulted in a significant appreciation of the USD. It was surprising to me that other major currencies were not the beneficiaries of this capital infusion like the USD.”
In Brown’s opinion “the most surprising market change was how quickly the Japanese yen fell out of favour. The currency weakened by nearly 25% between March 1 and Sept. 13th. The JPY historically has been a primary benefactor of equity market weakness and risk aversion flows but this was not the case in 2022.”
Were there any currency or precious metals trends in 2022 you were surprised by? Market changes can sometimes lead to trends observed through the year similar to the Japanese Yen shared by Steve Brown above. We asked our Traders if any trends became apparent in the currency exchange or precious metals markets.
Mavyan shares “I would have to say the alarming drop in the Euro was the most surprising event. Multi-year lows against both the CAD and USD (10 and 20 years respectively!) was the most talked-about movement in the currency markets this year as it took everyone by surprise.
Trader Jeffrey Wong weighs in with his thoughts “One of the bigger surprises of 2022 for me was how well the US dollar performed and how the FED solidified the USD as the global safe haven currency, regardless of how much money supply was printed in 2020 due to Covid. We saw a strong uptrend and rush back into USD as a safe haven currency as soon as inflation started getting out of control, and ultimately governments turned hawkish in the 1st quarter of this year as the FED went on a barrage of consecutive outsized rate hikes. This rate tightening cycle continues to bolster the dollar. Precious metals also did not perform as well as many expected as a hedge as it seemed market sentiment favored the dollar more as a flight to safety, although this trend could shift in 2023 if/when the FED decides to pivot.”
What opportunities did our business customers take advantage of this year due to market volatility?
VBCE supports businesses across industries including Tech, Mining, Auto, Film & TV just to name a few. Working with a dedicated Trader allows our customers to build a relationship with a currency exchange or precious metals expert who becomes part of their financial management for their business. Businesses need to be aware of how the markets are performing if they are exchanging funds for bill payments, paying foreign contractors or receiving foreign income and we’re there to help.
With the market volatility did we see our customers take advantage of the volatility in the market? “Many of my business customers who are net USD-sellers took advantage of the abnormally strong USD during the period between about mid-September to mid-October. Many clients were able to cash in their USD to CAD at high rates not seen since about July 2020. They certainly were pleased!” shares Mavyan.
Similarly Brown reports that importers and exporters were equally able to take advantage of the volatility through cyclical buying and selling “there were several opportunities to hedge at very attractive exchange rates this year. The USDCAD rate traded near a 10 month low in April (near 1.2400) which provided a great USD buying opportunity for importers. In late September, USDCAD briefly traded above 1.39 – near a 20 year high (with the exception of a few trading days in 2016 and the early stages of the pandemic in 2020) which was a great USD selling opportunity for exporters. Also, August and early September presented great buying opportunities for importers requiring EUR, GBP, JPY, and AUD.”
Vitharana observed that “most of my business customers sold their currencies and purchased gold and, or silver. Their main rational for doing so was due to gold and silver’s ability to hold wealth and act as a hedge against inflation.”
Jeffrey shared that in his observation “many corporate clients earning USD revenue took advantage of the strong dollar this past year, many of them locking in 3–6-month forwards to continue taking advantage of these rates. On the flip side, many clients sending GBP and EUR took advantage of the multi-yearly low rates seen this year. The Russian invasion of Ukraine also fanned the flames as the eastern side of the globe was more affected by high energy prices, and thus higher inflation. Although material and product cost increased, clients were able to offset these price changes and more with the drastic devaluation in GBP and EUR. The clients who took advantage of our forward services and this market volatility were able lock in months ahead and save tens of thousands of dollars. The GBP and EUR have since recovered ~15% and ~20% respectively vs the CAD$ from their multi-year lows.”
What opportunities did our individual customer take advantage of this year due to market volatility?
It isn’t just businesses that VBCE helps with currency exchange and buying gold and silver coins or bars, or other precious metals, we help everyday people with their needs whether as an investment, gift giving, preparing for an international trip, or sending money abroad to family.
We wanted to know what opportunities our savvy customers took advantage of with the market shifts in 2022.
“Most of my individual clients took advantage of the alarming dip in the Euro for property purchases in Europe or sending funds to loved ones. Many also took advantage of broadly lower prices for precious metals (gold, silver etc.) for investment purposes.” Shares Mavyan.
Where Vitharana reports that “between June and November, the JPY dropped in value and was reaching decade lows. As a result, we experienced a lot of retail clients purchasing yen for numerous reasons. E.g., spending money for their trips during the December holidays, long term currency investing/speculation, as well as to send money back to their family in Japan. During the same period, the EUR also experienced a significant drop with retails clients buying euros for much of the same reason.”
Wong observed “individual clients took advantage of our target/over-night order services as the volatility this year allowed a wider range of movement for the client to try and stagger or average out their rates in more spread out intervals. We saw a 15-cent range in 2022, bottoming out in the mid 1.24s and falling just short of 1.40 in October. Many clients were able to set achievable targets and hit in a reasonable amount of time due to the increased volatility.”
As you can see there are many different requirements our individual clients have, and we can support each one in a very tailored way depending on their individual needs.
What, in your opinion, do you expect in 2023 for the currency market? What are you excited about?
No one has a magic ball to look into to see the future, but we wanted to ask our Traders what they though about next year. With the volatility we saw in 2022 would 2023 be similar. In their opinion we saw a few key focus areas that the Traders were keeping their eyes on in 2023.
Brown reflects “the CAD is finishing 2022 with some weakness despite a trend of strong economic data compared to the rest of the world. There are positive seasonal factors with oil prices generally stronger in the spring / early summer months. Should inflation in the U.S. continue to fall and the U.S. Fed change its tune on interest rates, continued broad-based USD weakness should also benefit the CAD.”
Mavyan shared his thoughts around what to expect focusing on the highs and lows in the market, “It’s tough to say what will happen given the unpredictability of the past few years. I think we can expect continued volatility like what we saw this year which certainly makes for some excitement moving into the New Year.”
Vitharana looks to trends in currencies “the USD has continued to show its resiliency as other major currencies fell in value (such as the EUR & JPY). I’m excited to see how this plays out into 2023 as these currencies eventually recover. I also expect to see commodities driven currencies that are positively correlated with crude oil prices (such as the CAD) to continue to remain stable as long as oil prices remain strong.”
Wong takes a more economic view looking at the impact on inflation in the US, “At this point in time, CPI is still at ~7%, so I’m still expecting a lot of uncertainty. It will be exciting to see whether we see a Soft Landing or a hard landing and that will be entirely dependent on how well the FED handles the continued pace of the rate hikes in reaction to the changes in inflation and job/wage data. Either way there will be continued volatility, and opportunities for clients to take advantage of” according to Wong.
What, in your opinion, do you expect in 2023 in the precious metals market? What are you excited about?
Like the currency market we all want to know what will happen in the precious metals markets as well. Again, without a crystal ball we asked our traders their opinion of that they would be watching next year based on their experience.
Brown reflects “with interest rates likely peaking and set to turn lower, the selling in gold and silver seen this year should fade and prompt a recovery in precious metals prices.”
Mavyan shares some potential strategies between markets “I think that if inflation in many of the world’s major economies continues to be a problem, then we could see a continued spike in precious metals prices as investors get nervous and try to hedge against their inflation worries (like what we saw during the COVID pandemic years).”
Vitharana focuses on inflation and migration responding, “I expect the prices for gold and silver to remain stable (if not rise). Strong inflationary pressures on fiat currency-based investments will continue to drive investors towards precious metals investing. In addition, during periods of global instability (such as in Eastern Europe right now) capital flight commonly occurs. During this time, its typical for immigrants from these counties to carry out their assets in physical gold.”
Wrapping up 2022 and looking forward to 2023
VBCE thanks all its valued clients for your support of our local Canadian business, and for sharing your experience with your business partners, friends and families this year. We aim to provide the best pricing in currency exchange and precious metals making these transactions easy and convenient with competitive pricing better than the commercial banks offer. In tough economic times we are proud to be able to offer our clients value for their money and an elevated level of customer service for all.
Happy New Year from the VBCE family!