A feng shui spin on forex for 2020

By Chee Jo-Ey

ON the cusp of a new year, Maybank Kim Eng Research taps into feng shui for its interpretation of the foreign exchange market for the Year of Metal Rat 2020.

According to its predictions, the new year could see more peace than the Year of the Earth Pig 2019.

The reason for this is because 2020 is classed as the Year of the Metal Rat. The rat is a water element and in the Five Element theory of Chinese metaphysical studies, metal nourishes water, making this a harmonious combination.

There are already signs of that as the Year of the Metal Rat nears with the US and China already eyeing a deal (or rather a partial one).

The year 2020 could also prove to be more advantageous for Xi Jinping relative to 2018-2019.

The US and China are now led by Trump (Earth Dog) and Xi Jinping (Water Snake) respectively. The trade war officially started in mid-2018. For the past two years, the earth element (Year of the Earth Dog 2018 and Year of the Earth Pig 2019) allowed the US Earth Dog Trump to have the upper hand in negotiations as earth contains China’s Xi Jinping, the Water Snake according to the controlling/destructive cycle.

The controlling/ destructive cycle (as shown by the arrows in the graphic that form a star within the five elements)

Wood dominates Earth

Earth dominates Water

Water dominates Fire

Fire dominates Metal

Metal dominates Wood

In the Year of the Metal Rat, however, this could change. Metal nourishes water and the Year of the Metal Rat could be supportive and productive for Xi Jinping (Water Snake), allowing him a higher chance of dismantling the tariffs that the US has imposed on China cumulatively in the past several months and that seems to be already the case for the widely anticipated deal.

In an interesting turn of events, Trump (Earth Dog) who has thrived rather well in the past two years, could be weakened by metal, according to the weakening cycle.

Having a metal element to weaken the Earth Dog that is Trump underscores the likelihood that this could be a year that would see less international discord between the US and other countries.

The US dollar is known as the greenback while the renminbi or RMB is sometimes casually known as the redback. Green is the colour of wood and red represents fire.

In the Year of the Metal Rat (water), metal controls wood (USD) and water controls fire (RMB). Both the redback and greenback will not be able to outperform this year. Stay out of these two currencies in 2020.

Since 1972, the research house had noticed that the US dollar tended to outperform in years of the rat, depending on the accompanying element of the year. The Year of the Wood Rat in 1984 saw an exceptional performance of the USD as water nourishes wood (Rat) and the USD, which is a symbol of wood.

While the water element (rat) is there to nourish the USD (wood), the metal element controls/dominates the greenback as well. Hence, we anticipate a lacklustre year for the USD relative to other rat years.

Water-associated industries should thrive in the Year of the Metal Rat, including trade. Maybank says this is in line with its view for a recovery in trade and trade-linked currencies such as the Korean won, Taiwan dollar, Singapore dollar. To some extent, the Australian (AUD) and New Zealand (NZD) currencies should also see sustained gains.

Water-associated tourism should pick up as well which could bring about a fatter current account surplus through the services account for tourism-dependent countries. Stronger tourism flows should benefit the Thai baht, Taiwan dollar, Indonesian rupiah and the Philippine peso.

The Year of the Earth Pig saw plenty of easing by major central banks, including the US Federal Reserve, People’s Bank of China, Reserve Bank of India, Central Bank of Indonesia, Reserve Bank of Australia and Reserve Bank of New Zealand. However, global growth is still slower this year. Liquidity remains stagnant (water is contained by earth) and not fully utilised as investment and corporate decisions were thwarted by immense uncertainties brought about by trade conflicts between the US and China, the US and EU and to some extent Japan and South Korea.

However, Maybank sees some signs of shifting in this aspect as Christine Lagarde takes over as the chief of the European Central Bank and governments all over the world have come to realise that monetary easing could be near its limits and fiscal expenditures need to be stepped up. This bodes well as a more harmonious environment (relatively less geopolitical strife) coupled with more productive action from governments could stimulate growth.

Rat (water) nourishes wood but as highlighted previously, metal cuts wood according to the controlling cycle. Plantation-dependent countries like Indonesia and Malaysia may not outperform. Gains for the rupiah and ringgit may thus be mediocre.

Metals have done well in 2019 as the Year of the Earth Pig favoured the element. Gold, silver and palladium surged this year as the earth element produces gains for these precious metals although the Pig (Water) negated the metal gains thereafter.

The fortunes of metals may be further dulled in 2020 as the earth element diminishes and without the support of earth, metals may not see as much gains while the Rat (water) continues to weaken metals in general, crimping recovery for the AUD.

In Maybank’s research report, it also notes that the fire element would be curbed by the rat (water). That could mean that oil-linked currencies such as the ringgit and Canadian dollar may not be able to find much support this year. – Dec 23, 2019

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