Monday, April 12, 2010
Tuesday, March 23, 2010
China CEOs Join Obama in Supporting Yuan Appreciation
March 24 (Bloomberg) -- Chinese executives are joining U.S. President Barack Obama in backing a stronger yuan, even as Premier Wen Jiabao says the currency isn’t undervalued.
Yang Yuanqing, chief executive officer of Beijing-based computer maker Lenovo Group Ltd., said appreciation would boost consumers’ purchasing power. Qin Xiao, chairman of China Merchants Bank Co., said an end to the yuan’s 20-month peg to the dollar would let lenders set market-based interest rates. Chen Daifu, chairman of Hunan Lengshuijiang Iron & Steel Group Co., said a stronger currency would cut import costs.
While the comments conflict with Wen, who said March 14 that criticizing the exchange-rate policy amounted to “protectionism,” they are in line with traders who expect the government will let the yuan appreciate later this year. U.S. lawmakers have called on Obama to use the threat of trade sanctions to force an end to a currency regime that they blame for making their nation’s manufacturers uncompetitive.
“We need to emphasize the benefits of yuan gains,” Zhang Yanling, vice chairman of Beijing-based Bank of China Ltd., the nation’s biggest foreign-currency lender, said in a March 19 interview. “The U.S. should also be talking about both aspects of the issue. We shouldn’t politicize it or become emotional.”
Contracts linked to its future value predict the currency will break its dollar link by July, gaining beyond 6.8 in three months. Twelve-month offshore forwards, which weakened to a three-month low yesterday, climbed 0.2 percent to 6.6687 per dollar today. They reflect bets the yuan will advance 2.4 percent in the coming year, down from 3 percent before Wen’s briefing.
Quick Gain ‘Disruptive’
Hangzhou-based Wanxiang Group Co., the nation’s largest auto-parts maker, can cope with a gradual advance, though a quick appreciation would be “disruptive,” Chairman Lu Guanqiu said in a March 8 interview in Beijing.
China Eastern Airlines Corp., the nation’s second-largest carrier, would increase profit by 280 million yuan ($41 million) for every 1 percent annual yuan gain because of its dollar debt, President Ma Xulun said at a shareholders’ meeting March 19. The Shanghai-based company may post 2009 net income of 614 million yuan, according to the median of seven analyst estimates compiled by Bloomberg.
Airlines Rally
The airline’s shares climbed 17 percent in the past month in Hong Kong, as the MSCI China Index rose 4 percent to 62.80.
Morgan Stanley recommended on March 18 buying China Eastern along with Shanghai-based Baoshan Iron & Steel Co., the biggest publicly traded Chinese steelmaker. The New York-based bank estimated that the 5 percent maximum appreciation in the yuan it predicts for 2010 will have an average 2 percent positive impact on the earnings of Chinese companies, making them more attractive.
“Yuan appreciation will bring us benefits because we import several billion yuan worth of ore every year from abroad,” Chen, chairman of Hunan Lengshuijiang Steel, based in central Hunan province, said in a March 12 interview in Beijing.
Chinese banking executives blame the yuan peg for disrupting money markets. China’s dollar purchases to maintain the peg have driven currency reserves to $2.4 trillion and flooded the financial system with yuan. Chinese investors held $889 billion of Treasuries on Jan. 31, the biggest overseas holder of such debt.
Market-Driven Rates
China’s benchmark deposit rate is 2.25 percent, less than the 2.7 percent rate of consumer-price inflation in February. The central bank can’t raise interest rates without attracting more speculative capital at a time when U.S. benchmark rates are near zero.
“If we don’t reform the exchange-rate regime, how can we price interest rates based on the market?” Qin, 62, at Shenzhen-based China Merchants, the nation’s fifth-largest lender by market value, told reporters on March 3 in Beijing.
Lenovo’s Yang, 45, said limited appreciation in the yuan wouldn’t be a “bad thing” as it would boost Chinese domestic purchasing power and encourage global trade using the currency. Lenovo acquired International Business Machines Corp.’s personal computer business in 2005.
“We may not worry too much about exporters if we can conduct more yuan-denominated trade,” Yang told reporters on March 5 in Beijing. China allowed yuan settlement in some parts of the country starting July 2 last year.
Expectations that China’s currency will appreciate drove such settlements to 7 billion yuan in the first two months of this year, almost twice the 3.6 billion yuan in the second half of 2009, according to Zhang, 58, at Bank of China, which has more than 800 overseas branches that can handle the trades.
“If the yuan is expected to be a strong currency, neighboring countries will prefer to hold the yuan instead of the dollar,” she said. “Will this be good for the U.S.?”
Stress Tests
Textile and furniture makers stand to lose the most from appreciation as their profit margins are as low as 3 percent, said Zhang Wei, vice chairman of the China Council for the Promotion of International Trade, at a March 18 press briefing in Beijing. Some would “face bankruptcy,” he said, after his organization conducted stress tests at 1,000 companies.
Sean Callow, a strategist in Sydney at Westpac Banking Corp., said in a March 23 interview that investors should buy six-month contracts because the trade dispute may cause “a relatively short” delay to the currency appreciation needed to fight inflation.
Economic Rebalancing
Wen, 67, has kept the yuan at about 6.8 per dollar since July 2008 to protect China’s exporters during the global recession, after allowing a 21 percent advance in the previous three years.
China may report a trade deficit of more than $8 billion in March, compared with a $24 billion surplus in October, as imports grow faster than exports, Wen told the China Development Forum on March 22. Exports accounted for a quarter of gross domestic product last year, down from a third in 2008, government data show.
Obama, 48, said on March 11 in Washington that “a more market-orientated exchange rate will make an essential contribution” to re-balancing the global economy. Five senators proposed legislation last week that would allow the U.S. to take action against exchange-rate “misalignments.” The Treasury Department will decide next month whether to label China as manipulating its currency, a designation not invoked since 1994.
Sending a Message
“To the extent that rhetoric increases in the U.S. you play to the hardliners in China, which makes it that much more difficult for the government to move,” Susan Schwab, a former U.S. Trade representative, said in a March 18 interview in Hong Kong. “We always have this impression that China is monolithic. There are debates going on internally.”
A planned meeting of Chinese and U.S. officials in Beijing in May will help “address disputes,” Premier Wen said at this week’s forum, calling on the world’s executives to help avoid a “currency war.” People’s Bank of China Governor Zhou Xiaochuan appealed for less “noise” in the debate, saying in Cancun, Mexico the same day that policy decisions should be based on “sound economic analysis.”
“On the political front, the administration has to play to the hard line and say we are not going to be swayed by U.S. pressure,” said Lee Boon Keng, Singapore-based deputy chief investment officer at Bank Julius Baer & Co., which manages about $142 billion in assets. It’s significant that executives at state enterprises are speaking in support of appreciation, he added, because “they’re sending a very strong message to the markets, to the people, that look, it actually works for you.”
Yang Yuanqing, chief executive officer of Beijing-based computer maker Lenovo Group Ltd., said appreciation would boost consumers’ purchasing power. Qin Xiao, chairman of China Merchants Bank Co., said an end to the yuan’s 20-month peg to the dollar would let lenders set market-based interest rates. Chen Daifu, chairman of Hunan Lengshuijiang Iron & Steel Group Co., said a stronger currency would cut import costs.
While the comments conflict with Wen, who said March 14 that criticizing the exchange-rate policy amounted to “protectionism,” they are in line with traders who expect the government will let the yuan appreciate later this year. U.S. lawmakers have called on Obama to use the threat of trade sanctions to force an end to a currency regime that they blame for making their nation’s manufacturers uncompetitive.
“We need to emphasize the benefits of yuan gains,” Zhang Yanling, vice chairman of Beijing-based Bank of China Ltd., the nation’s biggest foreign-currency lender, said in a March 19 interview. “The U.S. should also be talking about both aspects of the issue. We shouldn’t politicize it or become emotional.”
Contracts linked to its future value predict the currency will break its dollar link by July, gaining beyond 6.8 in three months. Twelve-month offshore forwards, which weakened to a three-month low yesterday, climbed 0.2 percent to 6.6687 per dollar today. They reflect bets the yuan will advance 2.4 percent in the coming year, down from 3 percent before Wen’s briefing.
Quick Gain ‘Disruptive’
Hangzhou-based Wanxiang Group Co., the nation’s largest auto-parts maker, can cope with a gradual advance, though a quick appreciation would be “disruptive,” Chairman Lu Guanqiu said in a March 8 interview in Beijing.
China Eastern Airlines Corp., the nation’s second-largest carrier, would increase profit by 280 million yuan ($41 million) for every 1 percent annual yuan gain because of its dollar debt, President Ma Xulun said at a shareholders’ meeting March 19. The Shanghai-based company may post 2009 net income of 614 million yuan, according to the median of seven analyst estimates compiled by Bloomberg.
Airlines Rally
The airline’s shares climbed 17 percent in the past month in Hong Kong, as the MSCI China Index rose 4 percent to 62.80.
Morgan Stanley recommended on March 18 buying China Eastern along with Shanghai-based Baoshan Iron & Steel Co., the biggest publicly traded Chinese steelmaker. The New York-based bank estimated that the 5 percent maximum appreciation in the yuan it predicts for 2010 will have an average 2 percent positive impact on the earnings of Chinese companies, making them more attractive.
“Yuan appreciation will bring us benefits because we import several billion yuan worth of ore every year from abroad,” Chen, chairman of Hunan Lengshuijiang Steel, based in central Hunan province, said in a March 12 interview in Beijing.
Chinese banking executives blame the yuan peg for disrupting money markets. China’s dollar purchases to maintain the peg have driven currency reserves to $2.4 trillion and flooded the financial system with yuan. Chinese investors held $889 billion of Treasuries on Jan. 31, the biggest overseas holder of such debt.
Market-Driven Rates
China’s benchmark deposit rate is 2.25 percent, less than the 2.7 percent rate of consumer-price inflation in February. The central bank can’t raise interest rates without attracting more speculative capital at a time when U.S. benchmark rates are near zero.
“If we don’t reform the exchange-rate regime, how can we price interest rates based on the market?” Qin, 62, at Shenzhen-based China Merchants, the nation’s fifth-largest lender by market value, told reporters on March 3 in Beijing.
Lenovo’s Yang, 45, said limited appreciation in the yuan wouldn’t be a “bad thing” as it would boost Chinese domestic purchasing power and encourage global trade using the currency. Lenovo acquired International Business Machines Corp.’s personal computer business in 2005.
“We may not worry too much about exporters if we can conduct more yuan-denominated trade,” Yang told reporters on March 5 in Beijing. China allowed yuan settlement in some parts of the country starting July 2 last year.
Expectations that China’s currency will appreciate drove such settlements to 7 billion yuan in the first two months of this year, almost twice the 3.6 billion yuan in the second half of 2009, according to Zhang, 58, at Bank of China, which has more than 800 overseas branches that can handle the trades.
“If the yuan is expected to be a strong currency, neighboring countries will prefer to hold the yuan instead of the dollar,” she said. “Will this be good for the U.S.?”
Stress Tests
Textile and furniture makers stand to lose the most from appreciation as their profit margins are as low as 3 percent, said Zhang Wei, vice chairman of the China Council for the Promotion of International Trade, at a March 18 press briefing in Beijing. Some would “face bankruptcy,” he said, after his organization conducted stress tests at 1,000 companies.
Sean Callow, a strategist in Sydney at Westpac Banking Corp., said in a March 23 interview that investors should buy six-month contracts because the trade dispute may cause “a relatively short” delay to the currency appreciation needed to fight inflation.
Economic Rebalancing
Wen, 67, has kept the yuan at about 6.8 per dollar since July 2008 to protect China’s exporters during the global recession, after allowing a 21 percent advance in the previous three years.
China may report a trade deficit of more than $8 billion in March, compared with a $24 billion surplus in October, as imports grow faster than exports, Wen told the China Development Forum on March 22. Exports accounted for a quarter of gross domestic product last year, down from a third in 2008, government data show.
Obama, 48, said on March 11 in Washington that “a more market-orientated exchange rate will make an essential contribution” to re-balancing the global economy. Five senators proposed legislation last week that would allow the U.S. to take action against exchange-rate “misalignments.” The Treasury Department will decide next month whether to label China as manipulating its currency, a designation not invoked since 1994.
Sending a Message
“To the extent that rhetoric increases in the U.S. you play to the hardliners in China, which makes it that much more difficult for the government to move,” Susan Schwab, a former U.S. Trade representative, said in a March 18 interview in Hong Kong. “We always have this impression that China is monolithic. There are debates going on internally.”
A planned meeting of Chinese and U.S. officials in Beijing in May will help “address disputes,” Premier Wen said at this week’s forum, calling on the world’s executives to help avoid a “currency war.” People’s Bank of China Governor Zhou Xiaochuan appealed for less “noise” in the debate, saying in Cancun, Mexico the same day that policy decisions should be based on “sound economic analysis.”
“On the political front, the administration has to play to the hard line and say we are not going to be swayed by U.S. pressure,” said Lee Boon Keng, Singapore-based deputy chief investment officer at Bank Julius Baer & Co., which manages about $142 billion in assets. It’s significant that executives at state enterprises are speaking in support of appreciation, he added, because “they’re sending a very strong message to the markets, to the people, that look, it actually works for you.”
Thursday, March 18, 2010
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Arcane Currency Battle Masks Deeper Economic Tensions with China
For much of the last decade, the economic relationship between the United States and China was like a bartender and his favorite patron. American consumers knocked back flat-panel TVs, laptops and lots of other made-in-China products while Beijing rang up the charges, but extended more and more credit so the customer could keep drinking.
On paper, the Chinese accumulated hundreds of billions of U.S. dollars. But instead of cashing in its horde, China loaned much of it back to Americans to help finance ever-higher consumer borrowing, as well as federal deficits and cheap mortgages.
It was a mutually beneficial arrangement while it lasted. But the Great Recession put that mountain of debt in a new, unsettling light. Now, the two partners are eyeing each other with growing resentment – each showering the other with unwelcome demands for policy changes.
And the tensions are being aggravated by domestic politics in both countries.
"The proverbial train wreck may be coming to pass," said Nicholas Lardy, a prominent China expert at the Peterson Institute for International Economics in Washington.
Chinese officials have begun to warn that, if Washington doesn't curb its rising deficits and stop badgering China to make concessions on currency and export policies, Beijing may begin dumping dollars. Or it might at least cut back on the massive buying of Treasury bonds that Washington depends on to finance its deficit.
Any such action could inflict economic pain on millions of Americans, costing jobs and hurting the recovery, some economists say.
But China is over a barrel too. If Beijing tightened the screws, the dollar would decline. The value of China's holdings would shrink. So would Americans' consumption of Chinese products. Even with the recession, U.S. imports from China amounted to a whopping $296 billion last year, while exports to China were just $70 billion, according to U.S. data.
Beijing has no ready replacement for the United States as its biggest customer. And years of rapid growth and rising prosperity have created popular expectations in China that the ruling Communist hierarchy cannot easily ignore -- especially the opinions of its the increasingly vocal business community and middle class.
The basic issue is how to reshape the U.S.-China relationship on a more sustainable and balanced basis. And the process is almost certain to require uncomfortable changes on both sides.
But right now the historic drama is playing out in an arcane argument over currency exchange rates – the value of the yuan versus the dollar
Scores of U.S. lawmakers in recent days have demanded that China strengthen its currency, so its goods wouldn't be so cheap in U.S. and other foreign markets. Raising the value of the yuan could also encourage China to buy more American products.
"The silence of our government on China's currency manipulation has become the silence of our factories," said Sen. Olympia Snowe, (R-Maine), a senior member of the Finance Committee.
Outside Congress, leading free-trade proponents including Nobel laureate Paul Krugman have joined labor leaders such as Leo Gerard of the Steelworkers Union in denouncing Beijing's refusal to act.
Twice in the last two months, Obama has called on the Chinese to act on their currency. Each time, the president got a sharp, negative response.
"For the Chinese government, it's not only about losing face and confidence" if they bow to U.S. pressure, said Zhou Shijian, a senior research fellow at the Center for U.S.-China relations at Tsinghua University. "It's also about the economy."
"In 2009, exports dropped 16%. Appreciating the yuan will impact the economy and social stability, not just face," he said.
Outside of China, few dispute that the yuan is undervalued, and most say by 25% or more. But there are differences over how much even a big increase in its value would help employment in the U.S. – or hurt it in China.
Drew Greenblatt, president of Marlin Steel Wire Products in Baltimore, calculates that he could double his company's payroll, to 60, if the Chinese currency rose by 25% or more against the dollar. That would more than offset the 10% to 15% cost disadvantage that Marlin's wire baskets currently have against made-in-China competitors.
On paper, the Chinese accumulated hundreds of billions of U.S. dollars. But instead of cashing in its horde, China loaned much of it back to Americans to help finance ever-higher consumer borrowing, as well as federal deficits and cheap mortgages.
It was a mutually beneficial arrangement while it lasted. But the Great Recession put that mountain of debt in a new, unsettling light. Now, the two partners are eyeing each other with growing resentment – each showering the other with unwelcome demands for policy changes.
And the tensions are being aggravated by domestic politics in both countries.
"The proverbial train wreck may be coming to pass," said Nicholas Lardy, a prominent China expert at the Peterson Institute for International Economics in Washington.
Chinese officials have begun to warn that, if Washington doesn't curb its rising deficits and stop badgering China to make concessions on currency and export policies, Beijing may begin dumping dollars. Or it might at least cut back on the massive buying of Treasury bonds that Washington depends on to finance its deficit.
Any such action could inflict economic pain on millions of Americans, costing jobs and hurting the recovery, some economists say.
But China is over a barrel too. If Beijing tightened the screws, the dollar would decline. The value of China's holdings would shrink. So would Americans' consumption of Chinese products. Even with the recession, U.S. imports from China amounted to a whopping $296 billion last year, while exports to China were just $70 billion, according to U.S. data.
Beijing has no ready replacement for the United States as its biggest customer. And years of rapid growth and rising prosperity have created popular expectations in China that the ruling Communist hierarchy cannot easily ignore -- especially the opinions of its the increasingly vocal business community and middle class.
The basic issue is how to reshape the U.S.-China relationship on a more sustainable and balanced basis. And the process is almost certain to require uncomfortable changes on both sides.
But right now the historic drama is playing out in an arcane argument over currency exchange rates – the value of the yuan versus the dollar
Scores of U.S. lawmakers in recent days have demanded that China strengthen its currency, so its goods wouldn't be so cheap in U.S. and other foreign markets. Raising the value of the yuan could also encourage China to buy more American products.
"The silence of our government on China's currency manipulation has become the silence of our factories," said Sen. Olympia Snowe, (R-Maine), a senior member of the Finance Committee.
Outside Congress, leading free-trade proponents including Nobel laureate Paul Krugman have joined labor leaders such as Leo Gerard of the Steelworkers Union in denouncing Beijing's refusal to act.
Twice in the last two months, Obama has called on the Chinese to act on their currency. Each time, the president got a sharp, negative response.
"For the Chinese government, it's not only about losing face and confidence" if they bow to U.S. pressure, said Zhou Shijian, a senior research fellow at the Center for U.S.-China relations at Tsinghua University. "It's also about the economy."
"In 2009, exports dropped 16%. Appreciating the yuan will impact the economy and social stability, not just face," he said.
Outside of China, few dispute that the yuan is undervalued, and most say by 25% or more. But there are differences over how much even a big increase in its value would help employment in the U.S. – or hurt it in China.
Drew Greenblatt, president of Marlin Steel Wire Products in Baltimore, calculates that he could double his company's payroll, to 60, if the Chinese currency rose by 25% or more against the dollar. That would more than offset the 10% to 15% cost disadvantage that Marlin's wire baskets currently have against made-in-China competitors.
Sunday, March 7, 2010
China faces new pressure to let currency rise
BEIJING — China faces mounting pressure from trading partners to loosen currency controls and is giving signs it might raise the value of the yuan to ease strains on its fast-growing economy.
A stronger yuan could help China's leaders achieve their goal of making the economy more self-sustaining by boosting consumer buying power and reducing dependence on exports and investment. It could narrow China's politically volatile trade surplus, making the flood of foreign money pouring into the economy more manageable.
A change might also help defuse tensions with the United States, Europe and other trading partners that complain an undervalued yuan makes China's exports unfairly cheap and hurts foreign competitors, possibly prolonging the global economic crisis. Some American lawmakers are calling for punitive tariffs on Chinese goods if Beijing fails to act.
Analysts say Beijing might allow the yuan to rise against the dollar before the middle of this year. But they say any increase will be gradual and do little to narrow U.S. and European trade deficits and create jobs.
"Even if China starts to appreciate, the possibility is it will be very slow and gradual, without an immediate impact on trade," said Nicholas Consonery, an analyst in Washington for Eurasia Group, a consulting firm.
On Friday, Premier Wen Jiabao said in a speech to China's legislature that the yuan will be kept "basically stable" at an "appropriate and balanced" level this year, though he gave no explanation of what that would mean.
Beijing tied the yuan to the dollar for decades but broke that link in 2005 and allowed it to rise by about 20 percent through late 2008. The government slammed on the brakes after the crisis hit and has held its currency steady against the greenback to help exporters compete as a plunge in global demand wiped out millions of Chinese factory jobs.
The United States and Europe downplayed currency complaints as they worked together with Beijing to revive global growth. But facing pressure to create jobs, they and governments as far-flung as Brazil have renewed demands for China to act.
President Barack Obama vowed in early February to "get much tougher" in trade disputes with China and to press for an end to currency regimes that he said depress export prices and put U.S. companies at a disadvantage. The U.S. Treasury has the option of declaring Beijing a currency manipulator in a report due out in April, which could set the stage for a complaint to the World Trade Organization and possible sanctions on Chinese goods.
Last year's U.S. trade deficit with China was $227 billion, down 15 percent from 2008 but among the highest ever. The 27-nation European Union reported a 65 billion euro ($88 billion) deficit with China for the first half of 2009.
A bipartisan group of 15 American senators urged U.S. Commerce Secretary Gary Locke in a Feb. 25 letter to investigate whether Beijing improperly helps Chinese companies by holding down the yuan. They said it is undervalued by up to 40 percent.
A stronger yuan would help Beijing get back on track to boosting household spending power after its 4 trillion yuan ($586 billion) stimulus package helped China to rebound quickly from the global crisis but worsened the tilt toward relying on investment to create jobs.
Chinese leaders worry that reckless overspending on unneeded factories and other assets could lead to financial problems, while the country can no longer count on double-digit annual export gains to drive growth.
But they face a daunting potential pitfall: A stronger yuan might hurt exports and cost jobs, fueling social tensions, while spending by China's consumers might not rise fast enough to fill the gap.
"They are in a difficult balancing act," said Michael Pettis, an associate professor of finance at Peking University's Guanghua School of Management. "The steps that need to be taken to rebalance the economy worsen the unemployment problem, and the steps that are taken to resolve unemployment worsen the imbalance."
Analysts say a rise in the yuan could begin before the middle of this year if export growth, which revived in December, stays on track.
That might coincide with the June meeting of the U.S.-China Strategic and Economic Dialogue, where the Americans are expected to make currency a priority. It would let Beijing's envoys respond to U.S. complaints by saying it was already taking action.
In a signal Beijing might be about to act, President Hu Jintao used the term "speed up" 50 times in a Feb. 3 speech to refer to building a consumption-based economy.
"There is an urgency about this. They realize this investment- and export-based economy needs to be balanced," said Citigroup economist Ken Peng.
But currency policy changes aren't expected during the two-week annual meeting of China's ceremonial legislature that ends in mid-March — a high-profile event when communist leaders try to prevent any shocks to business.
Analysts say a likely scenario is a small one-time rise in the yuan's value against the dollar, followed by a gradual, long-term increase to allow exporters of shoes, toys and other low-profit goods to adapt to tougher conditions.
China took a similar approach in 2005, when it revalued the yuan by 2 percent in a single day, then allowed a gradual, tightly controlled upward crawl that saw it gain about 5 percent annually.
"It's impossible for them to revalue in a sharp one-off move," Peng said. "If you do a one-time adjustment of 5 percent, that will put a lot of businesses into the red instantly, so that's not something they are willing to do."
In a possible effort to prepare the public for a change, government researchers have been quoted in the state press discussing possible approaches to a revaluation. A commentary in the China Securities Journal newspaper by Zhang Ming, a finance specialist at the Chinese Academy of Social Sciences, said the yuan might be allowed to rise by 5 percent this year.
Yet even if Chinese goods get more expensive in dollar terms, that won't drive American job growth because U.S. factories no longer make what China supplies, said UBS economist Dong Tao in a report this month. He said business would shift instead to Malaysia, Mexico or other low-cost suppliers.
"Unless the U.S. rebuilds its manufacturing base, China's loss would not be the U.S.'s gain," Tao wrote.
And the array of tensions with Washington over Taiwan, Tibet and the Internet could complicate Beijing's timing by making some leaders reluctant to look like they were giving in to pressure, said Citigroup's Peng.
"It will be very difficult for Chinese authorities to justify why they are allowing the currency to appreciate now," Peng said. "Appreciation is still viewed as some sort of a concession."
A stronger yuan could help China's leaders achieve their goal of making the economy more self-sustaining by boosting consumer buying power and reducing dependence on exports and investment. It could narrow China's politically volatile trade surplus, making the flood of foreign money pouring into the economy more manageable.
A change might also help defuse tensions with the United States, Europe and other trading partners that complain an undervalued yuan makes China's exports unfairly cheap and hurts foreign competitors, possibly prolonging the global economic crisis. Some American lawmakers are calling for punitive tariffs on Chinese goods if Beijing fails to act.
Analysts say Beijing might allow the yuan to rise against the dollar before the middle of this year. But they say any increase will be gradual and do little to narrow U.S. and European trade deficits and create jobs.
"Even if China starts to appreciate, the possibility is it will be very slow and gradual, without an immediate impact on trade," said Nicholas Consonery, an analyst in Washington for Eurasia Group, a consulting firm.
On Friday, Premier Wen Jiabao said in a speech to China's legislature that the yuan will be kept "basically stable" at an "appropriate and balanced" level this year, though he gave no explanation of what that would mean.
Beijing tied the yuan to the dollar for decades but broke that link in 2005 and allowed it to rise by about 20 percent through late 2008. The government slammed on the brakes after the crisis hit and has held its currency steady against the greenback to help exporters compete as a plunge in global demand wiped out millions of Chinese factory jobs.
The United States and Europe downplayed currency complaints as they worked together with Beijing to revive global growth. But facing pressure to create jobs, they and governments as far-flung as Brazil have renewed demands for China to act.
President Barack Obama vowed in early February to "get much tougher" in trade disputes with China and to press for an end to currency regimes that he said depress export prices and put U.S. companies at a disadvantage. The U.S. Treasury has the option of declaring Beijing a currency manipulator in a report due out in April, which could set the stage for a complaint to the World Trade Organization and possible sanctions on Chinese goods.
Last year's U.S. trade deficit with China was $227 billion, down 15 percent from 2008 but among the highest ever. The 27-nation European Union reported a 65 billion euro ($88 billion) deficit with China for the first half of 2009.
A bipartisan group of 15 American senators urged U.S. Commerce Secretary Gary Locke in a Feb. 25 letter to investigate whether Beijing improperly helps Chinese companies by holding down the yuan. They said it is undervalued by up to 40 percent.
A stronger yuan would help Beijing get back on track to boosting household spending power after its 4 trillion yuan ($586 billion) stimulus package helped China to rebound quickly from the global crisis but worsened the tilt toward relying on investment to create jobs.
Chinese leaders worry that reckless overspending on unneeded factories and other assets could lead to financial problems, while the country can no longer count on double-digit annual export gains to drive growth.
But they face a daunting potential pitfall: A stronger yuan might hurt exports and cost jobs, fueling social tensions, while spending by China's consumers might not rise fast enough to fill the gap.
"They are in a difficult balancing act," said Michael Pettis, an associate professor of finance at Peking University's Guanghua School of Management. "The steps that need to be taken to rebalance the economy worsen the unemployment problem, and the steps that are taken to resolve unemployment worsen the imbalance."
Analysts say a rise in the yuan could begin before the middle of this year if export growth, which revived in December, stays on track.
That might coincide with the June meeting of the U.S.-China Strategic and Economic Dialogue, where the Americans are expected to make currency a priority. It would let Beijing's envoys respond to U.S. complaints by saying it was already taking action.
In a signal Beijing might be about to act, President Hu Jintao used the term "speed up" 50 times in a Feb. 3 speech to refer to building a consumption-based economy.
"There is an urgency about this. They realize this investment- and export-based economy needs to be balanced," said Citigroup economist Ken Peng.
But currency policy changes aren't expected during the two-week annual meeting of China's ceremonial legislature that ends in mid-March — a high-profile event when communist leaders try to prevent any shocks to business.
Analysts say a likely scenario is a small one-time rise in the yuan's value against the dollar, followed by a gradual, long-term increase to allow exporters of shoes, toys and other low-profit goods to adapt to tougher conditions.
China took a similar approach in 2005, when it revalued the yuan by 2 percent in a single day, then allowed a gradual, tightly controlled upward crawl that saw it gain about 5 percent annually.
"It's impossible for them to revalue in a sharp one-off move," Peng said. "If you do a one-time adjustment of 5 percent, that will put a lot of businesses into the red instantly, so that's not something they are willing to do."
In a possible effort to prepare the public for a change, government researchers have been quoted in the state press discussing possible approaches to a revaluation. A commentary in the China Securities Journal newspaper by Zhang Ming, a finance specialist at the Chinese Academy of Social Sciences, said the yuan might be allowed to rise by 5 percent this year.
Yet even if Chinese goods get more expensive in dollar terms, that won't drive American job growth because U.S. factories no longer make what China supplies, said UBS economist Dong Tao in a report this month. He said business would shift instead to Malaysia, Mexico or other low-cost suppliers.
"Unless the U.S. rebuilds its manufacturing base, China's loss would not be the U.S.'s gain," Tao wrote.
And the array of tensions with Washington over Taiwan, Tibet and the Internet could complicate Beijing's timing by making some leaders reluctant to look like they were giving in to pressure, said Citigroup's Peng.
"It will be very difficult for Chinese authorities to justify why they are allowing the currency to appreciate now," Peng said. "Appreciation is still viewed as some sort of a concession."
Thursday, March 4, 2010
The Global Roots of Euro-Jitters
FLORENCE – It is too simplistic to explain the current wave of concern about the euro in terms of Greece’s problems. Greece has massive fiscal and competitiveness problems, but Greece (2.25% of the population of the European Union) is smaller than California (12% of the population of the United States). And California, too, is suffering massive fiscal difficulties and declining competitiveness in some of the industries in which Californians were once pioneers.
The euro’s current problems are, instead, a reflection of unresolved Europe-wide and global problems. The common currency is the canary in the mine of the global exchange-rate system.
The euro precisely measures international tensions in that it is a bold experiment: a currency that is not linked to a state, but rather follows from international rules and treaties. It is a creature of the intellect rather than a product of power. It is a post-modern or post-sovereign currency. But in the aftermath of a crisis, countries put national interests above their willingness to go along with international rules.
The creation of money is often thought to be the domain of the state: this was the prevalent doctrine of the nineteenth century, reaching its apogee in the German economist Georg Friedrich Knapp’s The State Theory of Money. In the New Testament, Christ famously answers a question about obedience to civil authorities by examining a coin and telling the Pharisees, “Render unto Caesar what is Caesar’s.” Unlike most banknotes and coins, there is no picture of the state or its symbols – no Caesar – on the money managed by the European Central Bank.
There has always been a close relationship between European monetary integration and global problems. Europeans thought that their close geographic proximity and shared cultural inheritance might enable them to produce answers where global debates had become stalled. When things did not work out globally, a regional solution might be possible.
The impetus to the first act of European monetary integration, the 1970 Werner Report, stemmed from awareness that there were major difficulties in the fixed exchange-rate system established in 1944 at the Bretton Woods conference. Nobody outside the US could force it to restrain either its monetary policy, which was becoming increasingly expansive under President Richard Nixon, or its fiscal policy, marked by mushrooming deficits due to the costs of the Vietnam war.
Policymakers in France loved to quote a remark by the French poet Paul Valéry, who in the middle of the chaos of the Great Depression had written that “Europe visibly aspires to be governed by an American committee.” To Europeans, the International Monetary Fund, which supervised exchange-rate arrangements in the post-Bretton Woods world, looked like a perfectly American committee, and France did not like that.
The Werner Report’s ideas were too feeble to deal with the currency turmoil of the early 1970’s, and it was almost a decade before Europe produced a new response. The European Monetary System began as a high-level reaction to global currency chaos, and in particular to the depreciation of the dollar in 1977 and 1978, which seemed to threaten its continued role as the major international reserve currency.
The process that began with the report of the Delors Committee in 1989 and led to the Maastricht Treaty in 1992, the establishment of the euro in 1999, and the introduction of the physical currency in 2002 was rooted in an attempt to devise mechanisms that would generate a more stable global exchange-rate regime.
The critical policy innovators of the late 1980’s, in particular the highly activist French Finance Minister Edouard Balladur, took an international answer and started to advocate its realization on the European level. At the G-7 meeting of finance ministers in Louvre in February 1987, Balladur suggested a system of currency target zones; when its realization proved problematic, he pushed on with a more definitive and tighter European version of the scheme.
What resulted was a partly flawed answer to the problem. That was because France and Germany, the principal protagonists in the drama of monetary integration, had different visions of how the problem should be solved. The Germans pressed for clearly defined fiscal rules, but other countries wanted more wiggle room. The French argued for European economic governance alongside the monetary union, but that looked to others as imposing too much French planisme. A watered-down version of the German solution was eventually adopted.
Today, as in the 1960’s or 1970’s, we face a fundamentally global problem of inconsistent monetary policies. Back then, Europeans complained that low interest rates in America were driving global inflation; now low US interest rates are blamed for driving irresponsible asset-price booms.
Indeed, low US interest rates, though an appropriate domestic response to the financial crisis, have pushed a global carry trade in which people borrow in dollars to fund investments in the apparently less crisis-hit large emerging-market economies. These large transactions are funneled through the international banking system.
The answers to a global problem of this kind cannot be found on a European level. It will demand global coordination of monetary policies, and some form of global economic governance. Europe tried this combination, and found that even in a regional setting it could not be fully realized. Instead, an imperfect answer produced heightened vulnerability. The result is that Europe has made itself into the primary victim of the financial crisis.
The euro’s current problems are, instead, a reflection of unresolved Europe-wide and global problems. The common currency is the canary in the mine of the global exchange-rate system.
The euro precisely measures international tensions in that it is a bold experiment: a currency that is not linked to a state, but rather follows from international rules and treaties. It is a creature of the intellect rather than a product of power. It is a post-modern or post-sovereign currency. But in the aftermath of a crisis, countries put national interests above their willingness to go along with international rules.
The creation of money is often thought to be the domain of the state: this was the prevalent doctrine of the nineteenth century, reaching its apogee in the German economist Georg Friedrich Knapp’s The State Theory of Money. In the New Testament, Christ famously answers a question about obedience to civil authorities by examining a coin and telling the Pharisees, “Render unto Caesar what is Caesar’s.” Unlike most banknotes and coins, there is no picture of the state or its symbols – no Caesar – on the money managed by the European Central Bank.
There has always been a close relationship between European monetary integration and global problems. Europeans thought that their close geographic proximity and shared cultural inheritance might enable them to produce answers where global debates had become stalled. When things did not work out globally, a regional solution might be possible.
The impetus to the first act of European monetary integration, the 1970 Werner Report, stemmed from awareness that there were major difficulties in the fixed exchange-rate system established in 1944 at the Bretton Woods conference. Nobody outside the US could force it to restrain either its monetary policy, which was becoming increasingly expansive under President Richard Nixon, or its fiscal policy, marked by mushrooming deficits due to the costs of the Vietnam war.
Policymakers in France loved to quote a remark by the French poet Paul Valéry, who in the middle of the chaos of the Great Depression had written that “Europe visibly aspires to be governed by an American committee.” To Europeans, the International Monetary Fund, which supervised exchange-rate arrangements in the post-Bretton Woods world, looked like a perfectly American committee, and France did not like that.
The Werner Report’s ideas were too feeble to deal with the currency turmoil of the early 1970’s, and it was almost a decade before Europe produced a new response. The European Monetary System began as a high-level reaction to global currency chaos, and in particular to the depreciation of the dollar in 1977 and 1978, which seemed to threaten its continued role as the major international reserve currency.
The process that began with the report of the Delors Committee in 1989 and led to the Maastricht Treaty in 1992, the establishment of the euro in 1999, and the introduction of the physical currency in 2002 was rooted in an attempt to devise mechanisms that would generate a more stable global exchange-rate regime.
The critical policy innovators of the late 1980’s, in particular the highly activist French Finance Minister Edouard Balladur, took an international answer and started to advocate its realization on the European level. At the G-7 meeting of finance ministers in Louvre in February 1987, Balladur suggested a system of currency target zones; when its realization proved problematic, he pushed on with a more definitive and tighter European version of the scheme.
What resulted was a partly flawed answer to the problem. That was because France and Germany, the principal protagonists in the drama of monetary integration, had different visions of how the problem should be solved. The Germans pressed for clearly defined fiscal rules, but other countries wanted more wiggle room. The French argued for European economic governance alongside the monetary union, but that looked to others as imposing too much French planisme. A watered-down version of the German solution was eventually adopted.
Today, as in the 1960’s or 1970’s, we face a fundamentally global problem of inconsistent monetary policies. Back then, Europeans complained that low interest rates in America were driving global inflation; now low US interest rates are blamed for driving irresponsible asset-price booms.
Indeed, low US interest rates, though an appropriate domestic response to the financial crisis, have pushed a global carry trade in which people borrow in dollars to fund investments in the apparently less crisis-hit large emerging-market economies. These large transactions are funneled through the international banking system.
The answers to a global problem of this kind cannot be found on a European level. It will demand global coordination of monetary policies, and some form of global economic governance. Europe tried this combination, and found that even in a regional setting it could not be fully realized. Instead, an imperfect answer produced heightened vulnerability. The result is that Europe has made itself into the primary victim of the financial crisis.
Sunday, February 28, 2010
Cracks appearing in euro currency union
Deep fault lines are running through Europe's currency union.
The euro, German Chancellor Angela Merkel warned last night, is facing its most serious crisis since its launch a decade ago. And financier George Soros warned that the 16-nation union “may not survive.”
Their comments came as European Union officials prepared to visit Athens today amid reports of an EU bailout whose effects could lead to further debt crises in the continent's troubled south.
Greece has been at the centre of a storm that has rattled currency and stock markets fearing a sovereign default because of its massive debts. While Greece has been the focus, other countries such as Spain, Portugal, Ireland and Italy are also causing concern.
The European Union's top finance official, Olli Rehn, will be in Athens today in a final effort to persuade Greece to force further cuts in public spending and services, increases in retirement ages, tax hikes and black-market crackdowns, after last week's austerity announcements failed to reassure bond markets. The harsh measures, which have already spurred unrest among the Greek public, may also be a precondition for a bailout package, in order to reassure EU taxpayers that Greeks are bearing a share of the burden.
Economy Minister Louka Katseli said that extra measures likely “will be announced soon.”
Athens only has enough funds left to keep its government solvent for two more weeks, after which it will need to refinance €20-billion ($28.7-billion) in loans due in April and May. It is currently preparing Greece's second bond issue of the year amid a collapsing credit rating and soaring borrowing costs.
Contradicting reports this weekend from German and French officials, Ms. Merkel strenuously denied that Germany, along with France and the Netherlands, is putting together a package that would see government-owned banks purchase that debt using government funds.
“That is definitely not the case. We've got a treaty that does not include any provision for bailing states out, to help them out of a jam. We can best help Greece at the moment by making clear that Greece has to do its own homework, just like it is doing at the moment.”
Ms. Merkel is due to meet with Greek Prime Minister George Papandreou in Berlin Friday, and Greek officials said yesterday that they expect a bailout deal to be announced by then.
European officials are adamant that they do not want to send the International Monetary Fund to rescue Greece using one of its bailout packages, which provide emergency loans in exchange for mandated austerity measures. This, they say, will be perceived as a failure of the euro zone to correct its own problems.
But economists warned that a homebrew bailout is unknown, and technically illegal, territory, and it could trigger a domino effect.
“The worst thing that can possibly happen is for European countries to assume the debt of Greece – the only way they can justify it is with the quid pro quo of appearing to get really tough on the Greeks, even though they don't have any instruments to do so, and that will build up resentment and bad faith and cause a series of missteps in other countries,” economist Charles Wyplosz, a monetary policy expert, said in an interview yesterday.
He is one of many observers, including some in Greece, who say an IMF rescue would be more prudent, as the organization has funds for just this purpose and would serve as a politically neutral target for Greek public anger – and, more importantly, an IMF bailout would not distort debt markets by creating investor expectations of future EU bailouts.
This is the first such crisis since the euro was launched as the currency of 16 countries a decade ago, and there is very little sense of how to resolve it.
In the past, when countries like Greece and Italy have faced debt crises, they've run the printing presses and devalued their currencies, an inflation-provoking move that causes economic devastation but leaves neighbouring countries untouched.
The euro was designed, in part, to prevent such politically motivated devaluations. But it was also designed without a central treasury: The European Central Bank cannot influence fiscal policy.
To make this work, Europe insisted on a strict rule: No euro zone country can bail out another by buying its debt. The challenge in Germany (the only euro zone economy strong enough to finance a major share of a bailout) is to do this without the appearance of state involvement.
German officials told reporters this weekend, in off-record comments, that this would likely be done by using German, French and Dutch state-owned banks, a scheme that would follow the letter if not the spirit of the no-bailouts law.
Leaders and ministers of all three nations publicly denied this weekend that any such plan is in the works.
But yesterday morning Christine Lagarde, the French Finance minister, suggested in a radio interview that a debt-purchase rescue is in the works.
“I have no doubts that Greece will succeed in refinancing itself through ways that we are exploring at the moment,” she said, suggesting that the scheme would involve “either private partners, or public partners, or both.”
The euro, German Chancellor Angela Merkel warned last night, is facing its most serious crisis since its launch a decade ago. And financier George Soros warned that the 16-nation union “may not survive.”
Their comments came as European Union officials prepared to visit Athens today amid reports of an EU bailout whose effects could lead to further debt crises in the continent's troubled south.
Greece has been at the centre of a storm that has rattled currency and stock markets fearing a sovereign default because of its massive debts. While Greece has been the focus, other countries such as Spain, Portugal, Ireland and Italy are also causing concern.
The European Union's top finance official, Olli Rehn, will be in Athens today in a final effort to persuade Greece to force further cuts in public spending and services, increases in retirement ages, tax hikes and black-market crackdowns, after last week's austerity announcements failed to reassure bond markets. The harsh measures, which have already spurred unrest among the Greek public, may also be a precondition for a bailout package, in order to reassure EU taxpayers that Greeks are bearing a share of the burden.
Economy Minister Louka Katseli said that extra measures likely “will be announced soon.”
Athens only has enough funds left to keep its government solvent for two more weeks, after which it will need to refinance €20-billion ($28.7-billion) in loans due in April and May. It is currently preparing Greece's second bond issue of the year amid a collapsing credit rating and soaring borrowing costs.
Contradicting reports this weekend from German and French officials, Ms. Merkel strenuously denied that Germany, along with France and the Netherlands, is putting together a package that would see government-owned banks purchase that debt using government funds.
“That is definitely not the case. We've got a treaty that does not include any provision for bailing states out, to help them out of a jam. We can best help Greece at the moment by making clear that Greece has to do its own homework, just like it is doing at the moment.”
Ms. Merkel is due to meet with Greek Prime Minister George Papandreou in Berlin Friday, and Greek officials said yesterday that they expect a bailout deal to be announced by then.
European officials are adamant that they do not want to send the International Monetary Fund to rescue Greece using one of its bailout packages, which provide emergency loans in exchange for mandated austerity measures. This, they say, will be perceived as a failure of the euro zone to correct its own problems.
But economists warned that a homebrew bailout is unknown, and technically illegal, territory, and it could trigger a domino effect.
“The worst thing that can possibly happen is for European countries to assume the debt of Greece – the only way they can justify it is with the quid pro quo of appearing to get really tough on the Greeks, even though they don't have any instruments to do so, and that will build up resentment and bad faith and cause a series of missteps in other countries,” economist Charles Wyplosz, a monetary policy expert, said in an interview yesterday.
He is one of many observers, including some in Greece, who say an IMF rescue would be more prudent, as the organization has funds for just this purpose and would serve as a politically neutral target for Greek public anger – and, more importantly, an IMF bailout would not distort debt markets by creating investor expectations of future EU bailouts.
This is the first such crisis since the euro was launched as the currency of 16 countries a decade ago, and there is very little sense of how to resolve it.
In the past, when countries like Greece and Italy have faced debt crises, they've run the printing presses and devalued their currencies, an inflation-provoking move that causes economic devastation but leaves neighbouring countries untouched.
The euro was designed, in part, to prevent such politically motivated devaluations. But it was also designed without a central treasury: The European Central Bank cannot influence fiscal policy.
To make this work, Europe insisted on a strict rule: No euro zone country can bail out another by buying its debt. The challenge in Germany (the only euro zone economy strong enough to finance a major share of a bailout) is to do this without the appearance of state involvement.
German officials told reporters this weekend, in off-record comments, that this would likely be done by using German, French and Dutch state-owned banks, a scheme that would follow the letter if not the spirit of the no-bailouts law.
Leaders and ministers of all three nations publicly denied this weekend that any such plan is in the works.
But yesterday morning Christine Lagarde, the French Finance minister, suggested in a radio interview that a debt-purchase rescue is in the works.
“I have no doubts that Greece will succeed in refinancing itself through ways that we are exploring at the moment,” she said, suggesting that the scheme would involve “either private partners, or public partners, or both.”
Wednesday, February 24, 2010
Yuan Forwards Are Little Changed as China Checks Currency Gains
Feb. 24 -- China’s yuan forwards were little changed, following a two-day drop, on speculation the central bank will refrain from allowing the currency to appreciate in the first half of the year.
The country’s top decision-making body this week reaffirmed a “proactive” fiscal policy and a “appropriately loose” monetary stance, the state-run Xinhua News Agency reported Feb. 22. The central bank on Feb. 12 ordered lenders to set aside more deposits as reserves for the second time in a month to help contain inflation, a measure that takes effect tomorrow.
“The government won’t change its stance of keeping a stable currency or raise interest rates until at least the third quarter before its economic recovery is reinforced,” said Liu Xin, an analyst at the Hong Kong unit of Bank of Communications Ltd., China’s fifth-biggest lender. The increase in the reserve ratio is “gradually taking effect,” he said.
Twelve-month non-deliverable yuan forwards were at 6.6645 per dollar as of 10:44 a.m., indicating bets the yuan will strengthen 2.4 percent in a year. In the spot market, the currency traded at 6.8273, according to the China Foreign Exchange Trade System.
Forwards are agreements in which assets are bought and sold at current prices for delivery at a later specified time and date. Non-deliverable forwards are settled in U.S. dollars.
China’s National People’s Congress starts its annual meeting in Beijing on March 5, when the legislature will review the government’s annual work report, including the fiscal budget target for this year.
The country’s top decision-making body this week reaffirmed a “proactive” fiscal policy and a “appropriately loose” monetary stance, the state-run Xinhua News Agency reported Feb. 22. The central bank on Feb. 12 ordered lenders to set aside more deposits as reserves for the second time in a month to help contain inflation, a measure that takes effect tomorrow.
“The government won’t change its stance of keeping a stable currency or raise interest rates until at least the third quarter before its economic recovery is reinforced,” said Liu Xin, an analyst at the Hong Kong unit of Bank of Communications Ltd., China’s fifth-biggest lender. The increase in the reserve ratio is “gradually taking effect,” he said.
Twelve-month non-deliverable yuan forwards were at 6.6645 per dollar as of 10:44 a.m., indicating bets the yuan will strengthen 2.4 percent in a year. In the spot market, the currency traded at 6.8273, according to the China Foreign Exchange Trade System.
Forwards are agreements in which assets are bought and sold at current prices for delivery at a later specified time and date. Non-deliverable forwards are settled in U.S. dollars.
China’s National People’s Congress starts its annual meeting in Beijing on March 5, when the legislature will review the government’s annual work report, including the fiscal budget target for this year.
Sunday, February 21, 2010
European investors pour money into gold
One of the things to bear in mind about markets is that they have a way of cutting through the BS and spin that so often passes for reality in today’s gullible world. Watching a market react to a batch of bullish news by selling off tells us one of two things:
1.) The market has already priced such news in and traders who bought ahead of the news are now taking profits as the novices rush in and get their heads handed to them.
2.) The market is weaker than meets the eyes and is primed for a harder fall.
Same goes for a market that moves higher on what is generally regarded as bearish news. The news comes out, the market moves lower and then rebounds with a fury. What is that saying?
1.) the market has already discounted the news and now traders who were short are booking profits
2.) The market is internally much stronger than meets the eye.
In the past two days we have seen gold hit with a one-two combination punch which could not knock it out even though it initially sent it reeling. The first slam was the obvious ploy by the IMF to knock the price of gold down just as the technical indicators were turning positive and momentum funds were becoming interested in moving over to the long side. The second punch was the Fed’s announcement of a ¼% hike in the discount rate which sent the Dollar soaring and the Euro sinking. Sadly for the gold bears, gold took both punches, dusted itself off of the mat, and then came back and did some counterpunching on its own.
Here is the key to this development – just watch the price of gold in Euro terms as was pointed out earlier this week when discussing the flaws in the Precherites analysis of the gold market.
Succinctly – gold is continuing to make one new record high after another when priced in terms of the Euro. While we here in the US are naturally focused on the Dollar price of gold, gold is performing superbly in terms of the European currencies.
Fears concerning the longer term viability of the European monetary union, which I might add were destined to come to the forefront due to the “one size fits all” model which cannot possibly work with a series of nations with such different cultures and differing economic models, have sent European investment money pouring into gold ( Did you not read years ago before any of this occurred when Jim wrote that the Euro was a basket of junk). FEAR is driving this phenomenon and fear of such nature is not going to be easily assuaged by rhetoric. Investors on the continent are doing what they always do when faced with a currency whose foundation is shaking – they are moving into gold in a very large way.
It is not just the continent, but also across the Channel, that investment money is pouring into gold – witness the rise in gold priced in terms of the British Pound, another currency which is rapidly losing investor confidence. It too is threatening to also make another all time high, something which it just did a mere two months ago.
Ditto for gold when priced in terms of the Swiss Franc. While it has not yet put in an all time high, it is currently at its highest level since 1980.
As you can see, anything related to Europe is struggling in terms of gold. The Fed may posture and preen and try to establish its “hawkish” bona fides, but the facts are that what is occurring as a crisis of confidence in Europe, is overriding obvious attempts by the official sector to derail the rise in gold.
Simply put – gold “just ain’t buying it” and is telling us that it WANTS to go higher. This is the kind of sentiment that is reflected when a market rejects a bearish dose of news. It is going to take a very huge concerted effort on the part of these enemies of gold to stuff the yellow metal into a box. The WAR is heating up and looks to become even more fierce. Fasten your seat belts.
1.) The market has already priced such news in and traders who bought ahead of the news are now taking profits as the novices rush in and get their heads handed to them.
2.) The market is weaker than meets the eyes and is primed for a harder fall.
Same goes for a market that moves higher on what is generally regarded as bearish news. The news comes out, the market moves lower and then rebounds with a fury. What is that saying?
1.) the market has already discounted the news and now traders who were short are booking profits
2.) The market is internally much stronger than meets the eye.
In the past two days we have seen gold hit with a one-two combination punch which could not knock it out even though it initially sent it reeling. The first slam was the obvious ploy by the IMF to knock the price of gold down just as the technical indicators were turning positive and momentum funds were becoming interested in moving over to the long side. The second punch was the Fed’s announcement of a ¼% hike in the discount rate which sent the Dollar soaring and the Euro sinking. Sadly for the gold bears, gold took both punches, dusted itself off of the mat, and then came back and did some counterpunching on its own.
Here is the key to this development – just watch the price of gold in Euro terms as was pointed out earlier this week when discussing the flaws in the Precherites analysis of the gold market.
Succinctly – gold is continuing to make one new record high after another when priced in terms of the Euro. While we here in the US are naturally focused on the Dollar price of gold, gold is performing superbly in terms of the European currencies.
Fears concerning the longer term viability of the European monetary union, which I might add were destined to come to the forefront due to the “one size fits all” model which cannot possibly work with a series of nations with such different cultures and differing economic models, have sent European investment money pouring into gold ( Did you not read years ago before any of this occurred when Jim wrote that the Euro was a basket of junk). FEAR is driving this phenomenon and fear of such nature is not going to be easily assuaged by rhetoric. Investors on the continent are doing what they always do when faced with a currency whose foundation is shaking – they are moving into gold in a very large way.
It is not just the continent, but also across the Channel, that investment money is pouring into gold – witness the rise in gold priced in terms of the British Pound, another currency which is rapidly losing investor confidence. It too is threatening to also make another all time high, something which it just did a mere two months ago.
Ditto for gold when priced in terms of the Swiss Franc. While it has not yet put in an all time high, it is currently at its highest level since 1980.
As you can see, anything related to Europe is struggling in terms of gold. The Fed may posture and preen and try to establish its “hawkish” bona fides, but the facts are that what is occurring as a crisis of confidence in Europe, is overriding obvious attempts by the official sector to derail the rise in gold.
Simply put – gold “just ain’t buying it” and is telling us that it WANTS to go higher. This is the kind of sentiment that is reflected when a market rejects a bearish dose of news. It is going to take a very huge concerted effort on the part of these enemies of gold to stuff the yellow metal into a box. The WAR is heating up and looks to become even more fierce. Fasten your seat belts.
Sunday, February 14, 2010
Why Euro’s woes should scare us all
Last Thursday, Herman van Rompuy, the European Union’s new president, corralled Angela Merkel, the German chancellor, and Nicolas Sarkozy, the French president, into his office in Brussels to hammer out a statement that would pledge support for the tottering Greek economy.
Also present were George Papandreou, the Greek prime minister, Jean-Claude Trichet, president of the European Central Bank and Europe’s top money man, and an interpreter, who dived in when Sarkozy’s ability to express himself in his patchy English failed him.
This was EU realpolitik at its most obvious, the old Franco-German axis in full cry. The concern was understandable: as the two most powerful economies that use the euro, they could not afford to see the currency laid low by its weakest member, Greece.
Sarkozy was being typically assertive. He pushed hard for specific measures to bail out Greece, becoming “theatrical” at times, according to EU sources, as he pleaded with Merkel to accept the need for solidarity. She stood firm, knowing that more than 70% of her countrymen opposed coming to Greece’s aid.
When the meeting went into its second hour, officials started worrying that the other European leaders, including Gordon Brown, who were gathered in the nearby Solvay Library, one of Brussels’s architectural gems, for a routine summit, would get “jumpy”.
Eventually, after Jose Manuel Barroso, the European commission president, joined the meeting, a deal was struck. There would be an announcement but with no specifics. It would buy time — perhaps enough for the crisis to blow over — but if not, the eurozone’s finance ministers would be meeting on Monday to flesh it out. Even then, the announcement did not go well. Van Rompuy managed to fluff his lines and had to be gently encouraged by Barroso to repeat himself.
When he got the words out, Van Rompuy committed the 16 members of the eurozone to “determined and co-ordinated action if needed to safeguard financial stability”.
It fell far short of the rescue plan for the Greek economy the markets were looking for. The euro lost value against the dollar and the pound. The stock exchanges of Europe fell.
Papandreou was not happy either. On Friday, he criticised the EU for being “timid”, attacking the institutions which he said were “multiple doctors with differing prescriptions over the patient that is Greece”.
An analyst from Société Générale, one of Europe’s most august banks, continued the medical metaphor, saying that the rescue was a “sticking plaster” and that it merely put off “the ultimate denouement: the break-up of the eurozone”.
Others fear that the crisis could have even graver consequences. If Greece’s ills are not cured it could infect other countries — much as the banking crisis spread from institution to institution 15 months ago.
Those most in the spotlight are Portugal, Italy, Ireland and Spain, which with Greece make up the dealer’s acronym Piigs. Britain, which has a comparable budget deficit, when compared with GDP, to Greece, has also entered the frame.
If they were to suffer the same problems raising money as Greece has, then the already fragile recovery of the European, and indeed global, economy could be put in jeopardy.
This is why the seemingly distant issue of Greece’s economic wellbeing is being taken so seriously far beyond southern Europe.
THE mood in Athens last week was as gloomy as the weather. Heavy rain and strong winds put a dampener on plans by many Greeks to take advantage of a three-day weekend that marks the beginning of Orthodox Lent tomorrow.
The fiscal fast faced by most ordinary Greeks is set to last a lot longer than 40 days, as they are becoming only too aware. Even the divorce of Eleni Menegaki, one of the country’s most famous television personalities, has been relegated to the inside pages as the media have indulged in blanket coverage of the financial crisis.
On taking office last October, Papandreou inherited an economic nightmare. In August, the former Greek government had said it was on course for a budget deficit of 3.7% of gross domestic product. A month later, just ahead of the election, the figure was revised up to 6%.
By January, the figure was revised up again to 12.7% of GDP amid allegations that the previous numbers had been deliberately falsified.
It was the suddenness of the deterioration, and the suspicion it aroused about all Greece’s economic statistics, that spooked the markets and provoked a crisis for the euro.
When countries have their own currencies, these act as the safety valve when budget deficits soar. A fall in the currency — of the kind that has happened to sterling — helps economies grow out of recession and makes it cheaper for foreigners to buy the country’s government bonds and other assets.
Inside the euro, however, countries have no option of devaluing, other than leaving the currency entirely. If the markets decide they do not want to hold the country’s debt, the only recourse is a bailout — which the EU leaders offered in rhetorical if not practical terms last week.
For its part of the bargain, the Greek government needs to get its deficit under control, and quickly. Papandreou has introduced an austerity package to counter some of the more egregious problems.
Tax evasion is the norm in Greece. More than half of families declare incomes of below the €12,000-a-year (about £10,400) threshold for taxation and escape paying income tax. Most businesses also pay minimal amounts of tax.
One credible estimate puts tax evasion in Greece at €30 billion annually, equivalent to an eighth of the economy.
Another problem is the bloated public sector, which employs nearly one in three Greeks. Public workers also receive the equivalent of 14 salary payments a year, with bonuses at Christmas, Easter and in the summer. A pay and hiring freeze has been announced.
Despite muted protests on the streets of Athens last week, polls show majority support for the austerity measures the government says will get the budget deficit down to a manageable 3% of GDP in three years.
But there are few precedents for a country getting its public finances back in shape so quickly, particularly starting from such weakness. New figures show the Greek economy shrank by a further 0.8% in the final quarter of last year.
Turning round an entire economic culture, which has tolerated protectionism, nepotism and corruption, will be difficult. “Sometimes in Greece, we feel like we are a mix of the American Wild West and an African country,” said Stavros Alexakis, an Athens-based entrepreneur. “When one clan is in power, it controls everything, puts its own people in the best jobs, refuses checks and balances, and blames the problems on the other clan’s past governing.
“The Wild West only changed when the US federal government intervened to correct imbalances and injustices. Maybe this is what we need from the EU.”
THE fear that they were dealing with a bunch of cowboys was what concerned many leaders in Brussels last week. “Moral hazard” is what governments worried about when it came to bailing out the banks. The theory is that if bad behaviour is “excused” in the form of a bailout, then what is to stop others doing the same in the expectation that their bad behaviour will also be written off?
Bailing out Greece would be an even bigger moral hazard; rewarding a country for falsifying its own figures and living high on the hog when it could not afford it.
This was a problem for Merkel. “Will the Germans have to work not until they are 67, but also until 69, so the Greeks could enjoy their early pensions?” wrote Frankfurter Allgemeine Zeitung, Germany’s leading conservative broadsheet, which is close to Merkel’s Christian Democratic party (CDU), last week. The German pension age has already been raised to 67, while in Greece unions are calling for a strike because of attempt to raise the age from 61 to 63.
Jochen Felsenheimer of the Assenagon fund, one of Germany’s best-known credit analysts, said: “If you save Greece, it will lead to a destabilising of the currency union. The motivation in countries like Portugal or Spain to implement decisive measures against state debts will rapidly sink.” Ireland and Italy have serious budgetary problems. Will the EU be forced to bail them out too?
[It is unclear which direction this crisis will take next. It is unlikely, though, that the French and Germans would be prepared to suffer the upheaval the collapse of the euro would engender. That is safe for now.
However, there are sure to be knock-on political effects. Some in Brussels see the problems of the past few months as a reason to bind the EU’s members closer together. Lord Mandelson, the business secretary, claimed last week that the euro had been a “remarkable success” and that in the long term it would be in Britain’s interests to join.
“The danger is that a lot of people in Brussels see this as an opportunity rather than a threat,” said Mats Persson, director of the think tank Open Europe. “A decade ago, when the euro was founded, they said that we don’t have the tools now, but when a crisis comes along we will be able to take this forward.”
Having the tools in this case would mean extending the EU’s federal ambitions so it has a big enough central budget to be able to rescue its weaker members.
Last week, Van Rompuy indicated a desire for more central control by proposing that the EU be given greater oversight of national budgets and that summits between leaders take place every month rather than just four times a year.
It was long a criticism of eurosceptics that a single currency would not work among such diverse economies without political integration. Now, precisely such failings are being used as an excuse to increase political integration.
Although Brown stood aside from the deliberations, saying Greece was a problem for the eurozone, such developments would be impossible to ignore.
If a Tory government is elected, such creeping federalism could prove an early, and perhaps defining, test of David Cameron’s premiership.
Also present were George Papandreou, the Greek prime minister, Jean-Claude Trichet, president of the European Central Bank and Europe’s top money man, and an interpreter, who dived in when Sarkozy’s ability to express himself in his patchy English failed him.
This was EU realpolitik at its most obvious, the old Franco-German axis in full cry. The concern was understandable: as the two most powerful economies that use the euro, they could not afford to see the currency laid low by its weakest member, Greece.
Sarkozy was being typically assertive. He pushed hard for specific measures to bail out Greece, becoming “theatrical” at times, according to EU sources, as he pleaded with Merkel to accept the need for solidarity. She stood firm, knowing that more than 70% of her countrymen opposed coming to Greece’s aid.
When the meeting went into its second hour, officials started worrying that the other European leaders, including Gordon Brown, who were gathered in the nearby Solvay Library, one of Brussels’s architectural gems, for a routine summit, would get “jumpy”.
Eventually, after Jose Manuel Barroso, the European commission president, joined the meeting, a deal was struck. There would be an announcement but with no specifics. It would buy time — perhaps enough for the crisis to blow over — but if not, the eurozone’s finance ministers would be meeting on Monday to flesh it out. Even then, the announcement did not go well. Van Rompuy managed to fluff his lines and had to be gently encouraged by Barroso to repeat himself.
When he got the words out, Van Rompuy committed the 16 members of the eurozone to “determined and co-ordinated action if needed to safeguard financial stability”.
It fell far short of the rescue plan for the Greek economy the markets were looking for. The euro lost value against the dollar and the pound. The stock exchanges of Europe fell.
Papandreou was not happy either. On Friday, he criticised the EU for being “timid”, attacking the institutions which he said were “multiple doctors with differing prescriptions over the patient that is Greece”.
An analyst from Société Générale, one of Europe’s most august banks, continued the medical metaphor, saying that the rescue was a “sticking plaster” and that it merely put off “the ultimate denouement: the break-up of the eurozone”.
Others fear that the crisis could have even graver consequences. If Greece’s ills are not cured it could infect other countries — much as the banking crisis spread from institution to institution 15 months ago.
Those most in the spotlight are Portugal, Italy, Ireland and Spain, which with Greece make up the dealer’s acronym Piigs. Britain, which has a comparable budget deficit, when compared with GDP, to Greece, has also entered the frame.
If they were to suffer the same problems raising money as Greece has, then the already fragile recovery of the European, and indeed global, economy could be put in jeopardy.
This is why the seemingly distant issue of Greece’s economic wellbeing is being taken so seriously far beyond southern Europe.
THE mood in Athens last week was as gloomy as the weather. Heavy rain and strong winds put a dampener on plans by many Greeks to take advantage of a three-day weekend that marks the beginning of Orthodox Lent tomorrow.
The fiscal fast faced by most ordinary Greeks is set to last a lot longer than 40 days, as they are becoming only too aware. Even the divorce of Eleni Menegaki, one of the country’s most famous television personalities, has been relegated to the inside pages as the media have indulged in blanket coverage of the financial crisis.
On taking office last October, Papandreou inherited an economic nightmare. In August, the former Greek government had said it was on course for a budget deficit of 3.7% of gross domestic product. A month later, just ahead of the election, the figure was revised up to 6%.
By January, the figure was revised up again to 12.7% of GDP amid allegations that the previous numbers had been deliberately falsified.
It was the suddenness of the deterioration, and the suspicion it aroused about all Greece’s economic statistics, that spooked the markets and provoked a crisis for the euro.
When countries have their own currencies, these act as the safety valve when budget deficits soar. A fall in the currency — of the kind that has happened to sterling — helps economies grow out of recession and makes it cheaper for foreigners to buy the country’s government bonds and other assets.
Inside the euro, however, countries have no option of devaluing, other than leaving the currency entirely. If the markets decide they do not want to hold the country’s debt, the only recourse is a bailout — which the EU leaders offered in rhetorical if not practical terms last week.
For its part of the bargain, the Greek government needs to get its deficit under control, and quickly. Papandreou has introduced an austerity package to counter some of the more egregious problems.
Tax evasion is the norm in Greece. More than half of families declare incomes of below the €12,000-a-year (about £10,400) threshold for taxation and escape paying income tax. Most businesses also pay minimal amounts of tax.
One credible estimate puts tax evasion in Greece at €30 billion annually, equivalent to an eighth of the economy.
Another problem is the bloated public sector, which employs nearly one in three Greeks. Public workers also receive the equivalent of 14 salary payments a year, with bonuses at Christmas, Easter and in the summer. A pay and hiring freeze has been announced.
Despite muted protests on the streets of Athens last week, polls show majority support for the austerity measures the government says will get the budget deficit down to a manageable 3% of GDP in three years.
But there are few precedents for a country getting its public finances back in shape so quickly, particularly starting from such weakness. New figures show the Greek economy shrank by a further 0.8% in the final quarter of last year.
Turning round an entire economic culture, which has tolerated protectionism, nepotism and corruption, will be difficult. “Sometimes in Greece, we feel like we are a mix of the American Wild West and an African country,” said Stavros Alexakis, an Athens-based entrepreneur. “When one clan is in power, it controls everything, puts its own people in the best jobs, refuses checks and balances, and blames the problems on the other clan’s past governing.
“The Wild West only changed when the US federal government intervened to correct imbalances and injustices. Maybe this is what we need from the EU.”
THE fear that they were dealing with a bunch of cowboys was what concerned many leaders in Brussels last week. “Moral hazard” is what governments worried about when it came to bailing out the banks. The theory is that if bad behaviour is “excused” in the form of a bailout, then what is to stop others doing the same in the expectation that their bad behaviour will also be written off?
Bailing out Greece would be an even bigger moral hazard; rewarding a country for falsifying its own figures and living high on the hog when it could not afford it.
This was a problem for Merkel. “Will the Germans have to work not until they are 67, but also until 69, so the Greeks could enjoy their early pensions?” wrote Frankfurter Allgemeine Zeitung, Germany’s leading conservative broadsheet, which is close to Merkel’s Christian Democratic party (CDU), last week. The German pension age has already been raised to 67, while in Greece unions are calling for a strike because of attempt to raise the age from 61 to 63.
Jochen Felsenheimer of the Assenagon fund, one of Germany’s best-known credit analysts, said: “If you save Greece, it will lead to a destabilising of the currency union. The motivation in countries like Portugal or Spain to implement decisive measures against state debts will rapidly sink.” Ireland and Italy have serious budgetary problems. Will the EU be forced to bail them out too?
[It is unclear which direction this crisis will take next. It is unlikely, though, that the French and Germans would be prepared to suffer the upheaval the collapse of the euro would engender. That is safe for now.
However, there are sure to be knock-on political effects. Some in Brussels see the problems of the past few months as a reason to bind the EU’s members closer together. Lord Mandelson, the business secretary, claimed last week that the euro had been a “remarkable success” and that in the long term it would be in Britain’s interests to join.
“The danger is that a lot of people in Brussels see this as an opportunity rather than a threat,” said Mats Persson, director of the think tank Open Europe. “A decade ago, when the euro was founded, they said that we don’t have the tools now, but when a crisis comes along we will be able to take this forward.”
Having the tools in this case would mean extending the EU’s federal ambitions so it has a big enough central budget to be able to rescue its weaker members.
Last week, Van Rompuy indicated a desire for more central control by proposing that the EU be given greater oversight of national budgets and that summits between leaders take place every month rather than just four times a year.
It was long a criticism of eurosceptics that a single currency would not work among such diverse economies without political integration. Now, precisely such failings are being used as an excuse to increase political integration.
Although Brown stood aside from the deliberations, saying Greece was a problem for the eurozone, such developments would be impossible to ignore.
If a Tory government is elected, such creeping federalism could prove an early, and perhaps defining, test of David Cameron’s premiership.
Friday, February 12, 2010
Euro Falls for Fifth Week Versus Dollar on Greece, Growth
Feb. 13 -- The euro slid for a fifth week versus the dollar amid concern European Union efforts to avoid default by Greece will undermine the currency region and a report showed the EU’s economic recovery almost stalled.
The dollar rallied versus the yen after Federal Reserve Chairman Ben S. Bernanke said the central bank may raise the discount rate “before long” as economic stimulus measures are unwound. The euro yesterday touched an eight-month low versus the greenback as investors wait for the outcome of a Feb. 15-16 meeting of EU finance ministers that may provide details of a Greece bailout.
“It’s a very volatile process,” said Ron Leven, currency strategist at Morgan Stanley in New York. “No matter how this gets worked out, you will see more fiscal tightening, economic weakness and a European Central Bank that will be delayed in hiking rates. We are bearish on the euro.”
The euro dropped 0.3 percent to $1.3632 last week from $1.3678 on Feb. 5 for a fifth weekly decline, the longest streak in over a year. The 16-nation shared currency reached $1.3532 yesterday, the lowest since May 20. Against the yen, the euro rose 0.4 percent to 122.62, ending its four-week losing streak. The dollar rose 0.8 percent to 89.96 yen, from 89.25 last week.
The euro has fallen 4.8 percent against the dollar this year and 7.9 percent against the yen.
Futures traders this week increased bets to a record level that the euro will decline against the U.S. dollar.
Less Than Forecast
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain, the net position, was 57,152 on Feb. 9, compared with 43,741 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show.
The euro declined versus the dollar after the EU’s statistics office in Luxembourg yesterday said the region’s economy grew 0.1 percent in the fourth quarter, compared with economists’ forecasts for a 0.3 percent gain. It rose 0.4 percent in the third quarter.
The 16-nation common currency dropped on Feb. 11 as a statement issued by European leaders offered few details on how they would help Greece weather its debt crisis. Traders questioned how the EU would respond to a fresh wave of speculative attacks against Greece or countries such as Spain and Portugal, which are also struggling to cut their budget deficits.
‘Inevitable Break-Up’
The EU plan, brokered by German Chancellor Angela Merkel, Greek Prime Minister George Papandreou and European Central Bank President Jean-Claude Trichet, called for closer monitoring of the Greek economy.
“The statement bought the euro zone some time but unless something is done soon, downside pressure on the euro will persist,” said Geoffrey Yu, a currency strategist at UBS AG in London. The economic data will “give euro zone leaders an even greater incentive to get Greece sorted,” he said.
Southern European countries are trapped in an overvalued currency and suffocated by low competitiveness, a situation that will lead to the break-up of the euro bloc, according to Societe Generale SA strategist Albert Edwards.
The problem for countries including Portugal, Spain and Greece “is that years of inappropriately low interest rates resulted in overheating and rapid inflation,” London-based Edwards wrote in a report yesterday. “Any help given to Greece merely delays the inevitable break-up of the euro zone.”
Greece, representing 2.7 percent of the trading bloc’s $13 trillion economy, posted a budget deficit of 12.7 percent of gross domestic product in 2009, more than four times the EU’s 3 percent limit.
Real Fall
The dollar on Feb. 10 rose against the yen after Bernanke, in testimony prepared for the House Financial Services Committee, said the central bank may soon raise the discount rate as part of the “normalization” of Fed lending. He said a move in the discount rate won’t signal any change in the outlook for monetary policy.
“The Fed has been laying the ground work for how they will remove the monetary stimulus from the system,” said Andrew Busch, a global currency strategist at Bank of Montreal in Chicago. “It’s all baby steps in this path to normal monetary conditions.”
Futures trading in Chicago yesterday showed a 49 percent chance that the Fed will raise its target lending rate by at least a quarter-percentage point by its September meeting, up from 43 percent a week ago.
Brazil’s real fell yesterday as much as 1.6 percent to 1.8732 against the dollar, the biggest decline since Feb. 4, after China ordered banks to set aside more deposits as reserves for the second time in a month as part of an effort to cool growth in the world’s fastest-growing economy.
The reserve requirement will rise 50 basis points, or 0.5 percentage point, effective Feb. 25, the People’s Bank of China said on its Web site on Feb 11. The existing level is 16 percent for the biggest banks and 14 percent for smaller ones
The dollar rallied versus the yen after Federal Reserve Chairman Ben S. Bernanke said the central bank may raise the discount rate “before long” as economic stimulus measures are unwound. The euro yesterday touched an eight-month low versus the greenback as investors wait for the outcome of a Feb. 15-16 meeting of EU finance ministers that may provide details of a Greece bailout.
“It’s a very volatile process,” said Ron Leven, currency strategist at Morgan Stanley in New York. “No matter how this gets worked out, you will see more fiscal tightening, economic weakness and a European Central Bank that will be delayed in hiking rates. We are bearish on the euro.”
The euro dropped 0.3 percent to $1.3632 last week from $1.3678 on Feb. 5 for a fifth weekly decline, the longest streak in over a year. The 16-nation shared currency reached $1.3532 yesterday, the lowest since May 20. Against the yen, the euro rose 0.4 percent to 122.62, ending its four-week losing streak. The dollar rose 0.8 percent to 89.96 yen, from 89.25 last week.
The euro has fallen 4.8 percent against the dollar this year and 7.9 percent against the yen.
Futures traders this week increased bets to a record level that the euro will decline against the U.S. dollar.
Less Than Forecast
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain, the net position, was 57,152 on Feb. 9, compared with 43,741 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show.
The euro declined versus the dollar after the EU’s statistics office in Luxembourg yesterday said the region’s economy grew 0.1 percent in the fourth quarter, compared with economists’ forecasts for a 0.3 percent gain. It rose 0.4 percent in the third quarter.
The 16-nation common currency dropped on Feb. 11 as a statement issued by European leaders offered few details on how they would help Greece weather its debt crisis. Traders questioned how the EU would respond to a fresh wave of speculative attacks against Greece or countries such as Spain and Portugal, which are also struggling to cut their budget deficits.
‘Inevitable Break-Up’
The EU plan, brokered by German Chancellor Angela Merkel, Greek Prime Minister George Papandreou and European Central Bank President Jean-Claude Trichet, called for closer monitoring of the Greek economy.
“The statement bought the euro zone some time but unless something is done soon, downside pressure on the euro will persist,” said Geoffrey Yu, a currency strategist at UBS AG in London. The economic data will “give euro zone leaders an even greater incentive to get Greece sorted,” he said.
Southern European countries are trapped in an overvalued currency and suffocated by low competitiveness, a situation that will lead to the break-up of the euro bloc, according to Societe Generale SA strategist Albert Edwards.
The problem for countries including Portugal, Spain and Greece “is that years of inappropriately low interest rates resulted in overheating and rapid inflation,” London-based Edwards wrote in a report yesterday. “Any help given to Greece merely delays the inevitable break-up of the euro zone.”
Greece, representing 2.7 percent of the trading bloc’s $13 trillion economy, posted a budget deficit of 12.7 percent of gross domestic product in 2009, more than four times the EU’s 3 percent limit.
Real Fall
The dollar on Feb. 10 rose against the yen after Bernanke, in testimony prepared for the House Financial Services Committee, said the central bank may soon raise the discount rate as part of the “normalization” of Fed lending. He said a move in the discount rate won’t signal any change in the outlook for monetary policy.
“The Fed has been laying the ground work for how they will remove the monetary stimulus from the system,” said Andrew Busch, a global currency strategist at Bank of Montreal in Chicago. “It’s all baby steps in this path to normal monetary conditions.”
Futures trading in Chicago yesterday showed a 49 percent chance that the Fed will raise its target lending rate by at least a quarter-percentage point by its September meeting, up from 43 percent a week ago.
Brazil’s real fell yesterday as much as 1.6 percent to 1.8732 against the dollar, the biggest decline since Feb. 4, after China ordered banks to set aside more deposits as reserves for the second time in a month as part of an effort to cool growth in the world’s fastest-growing economy.
The reserve requirement will rise 50 basis points, or 0.5 percentage point, effective Feb. 25, the People’s Bank of China said on its Web site on Feb 11. The existing level is 16 percent for the biggest banks and 14 percent for smaller ones
Wednesday, February 10, 2010
Currency Buzz: Dollar Strikes Back In Asia
US Dollar has been slowly getting stronger in the Asian trades, turning up from a two session high of around 1.3800 even as European governments seemed to have agreed to help heavily indebted Greece. Traders preferred to keep their 'in dollar we trust' stance unabated as a break below the EMA 20 on the hourly charts bought some spillover gains for the greenback even as Asian equities were mostly higher.
Yesterday, the confidence in Europe's economic future rose for a 10th successive month in January. The European Commission's economic sentiment indicator rose by 2.1 points to 97.1 points across the 27-nation European Union, and hit 95.7 points (up 1.6 points) in the 16 countries that share the euro currency.
Among the largest economies, Italy and Britain -- which officially exited recession this week -- reported the biggest statistical increases in positive sentiment, of 4.2 points and 3.2 points respectively. Poland, Germany and France were narrowly up, but Spain -- the last major economy stuck in recession -- saw its level drop by minus 0.1 points.
The traders are still wary about a possible bailout for Greece, which would be the first rescue of a euro zone member in the currency's 11-year history. Such a support may have negative long-term ramifications and could have all the essential ingredients to lay the foundations for further imbalances and crisis
Meanwhile, yesterday, media reports stated that a U.S. sovereign-bond sale was part of broad retaliation measures under study by military personnel at the National Defense University and Academy of Military Sciences.
The US Dollar seems unruffled by all these proceedings and was last seen quoting at 1.3757 against the Euro, after hitting a high of 1.3742 just a while ago. The EMA 100 is around 1.3727 and may act a crucial support in case of a continued bullishness for the pair.
Yesterday, the confidence in Europe's economic future rose for a 10th successive month in January. The European Commission's economic sentiment indicator rose by 2.1 points to 97.1 points across the 27-nation European Union, and hit 95.7 points (up 1.6 points) in the 16 countries that share the euro currency.
Among the largest economies, Italy and Britain -- which officially exited recession this week -- reported the biggest statistical increases in positive sentiment, of 4.2 points and 3.2 points respectively. Poland, Germany and France were narrowly up, but Spain -- the last major economy stuck in recession -- saw its level drop by minus 0.1 points.
The traders are still wary about a possible bailout for Greece, which would be the first rescue of a euro zone member in the currency's 11-year history. Such a support may have negative long-term ramifications and could have all the essential ingredients to lay the foundations for further imbalances and crisis
Meanwhile, yesterday, media reports stated that a U.S. sovereign-bond sale was part of broad retaliation measures under study by military personnel at the National Defense University and Academy of Military Sciences.
The US Dollar seems unruffled by all these proceedings and was last seen quoting at 1.3757 against the Euro, after hitting a high of 1.3742 just a while ago. The EMA 100 is around 1.3727 and may act a crucial support in case of a continued bullishness for the pair.
Monday, February 8, 2010
Euro hovers above eight month low
The euro hovered above an eight-month low in Asian trade after euro zone finance chiefs reassured their Group of Seven counterparts over Greece's deepening debt troubles.
The euro stood at $1.3626 in Asian trade this morning, after sliding to as low as $1.3586 in New York on Friday.
Dealers said the European currency received a modest boost from remarks by euro zone finance officials at the G7 talks in Canada on Greece's efforts to rein in its public debt of more than €294 billion.
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'The European members of the G7 have confirmed to the other partners of the G7 the substance and the significance of the debt-reduction plan put together by Greece, and that they are confident that it will be managed,' French Economy Minister Christine Lagarde said.
The single European currency has been hammered by worries that debt-ridden countries such as Greece, Spain and Portugal may be unable to restore stability to their public finances, having spent heavily to combat recession.
Investors are now looking ahead to the European reports on economic growth, due for release later this week.
The euro stood at $1.3626 in Asian trade this morning, after sliding to as low as $1.3586 in New York on Friday.
Dealers said the European currency received a modest boost from remarks by euro zone finance officials at the G7 talks in Canada on Greece's efforts to rein in its public debt of more than €294 billion.
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'The European members of the G7 have confirmed to the other partners of the G7 the substance and the significance of the debt-reduction plan put together by Greece, and that they are confident that it will be managed,' French Economy Minister Christine Lagarde said.
The single European currency has been hammered by worries that debt-ridden countries such as Greece, Spain and Portugal may be unable to restore stability to their public finances, having spent heavily to combat recession.
Investors are now looking ahead to the European reports on economic growth, due for release later this week.
Thursday, February 4, 2010
FOREX-Euro hits 7-mth low vs dollar on debt woes
LONDON, Feb 4 (Reuters) - The euro hit a seven-month low against the dollar, knocked by concerns over the fiscal health of peripheral euro zone countries ahead of a European Central Bank policy decision later on Thursday.
Worries over Spain and Portugal have increased as investors speculate the two countries may face similar debt problems to Greece [ID:nLDE6121AC]. Such concerns pushed the safe-haven dollar to a six-month high versus a currency basket.
The euro EUR= hit its lowest level versus the U.S. dollar since June 2009 at $1.3827, according to Reuters data, with analysts expecting the single European currency to remain under pressure.
"The euro remains vulnerable and the market has now turned its attention to Spain and Portugal. Rallies have been short-lived and I am targeting a move towards $1.3745 in the short-term," said BNP currency strategist Ian Stannard.
Traders said moves in the euro could become volatile should ECB President Jean-Claude Trichet make any strong reference to fiscal problems in the euro zone. He will speak after a policy meeting at which the ECB is widely expected to keep interest rates on hold. [nLDE6110RC]
At 1040 GMT, the euro was trading down 0.3 percent on the day at $1.3845. Weakness was attributed to widening in peripheral euro zone bond yield spreads over German benchmarks. [nL9934677]
"Euro/dollar continues to trade off euro zone CDS/bond spreads and looks vulnerable," said ING currency strategist Chris Turner in a note.
STRONG U.S. DATA
Traders sold the single European currency on the view that dismal finances in euro zone countries may hinder any economic improvements in the region, increasing the probability that the U.S. economy may recover faster.
Strong U.S. data this week supported this view ahead of non-farm payrolls numbers due on Friday. A Reuters poll estimates 8,000 jobs were added to the economy last month. [ID:nN03191018]
The dollar .DXY hit a six-month high of 79.715 versus a basket of currencies, trading well above its 200-day moving average. Technical traders said the next resistance was at 80.07, which would be a 38.2 percent Fibonacci retracement of its fall from 89.624 to 74.17 in 2009.
The New Zealand dollar NZD=D4 hit a five-month low of $0.6939 after data showed the country's jobless rate rising to a 10-year high. [ID:nSGE6110KG]
The Australian dollar touched a six-week low of $0.8772 AUD=D4 after Australian retail sales fell more than expected in December. [ID:nSGE6120NF]
Sterling was down 0.3 percent at $1.5845 GBP=D4 before the Bank of England was expected to pause its quantitative easing programme at 1200 GMT. [ID:nLDE6122M4]
Risk-averse traders flocked to the yen, which pushed the dollar JPY= 0.5 percent lower to the day's trough of 90.59 yen. The euro EURJPY=R fell 0.8 percent to 125.50 yen.
Worries over Spain and Portugal have increased as investors speculate the two countries may face similar debt problems to Greece [ID:nLDE6121AC]. Such concerns pushed the safe-haven dollar to a six-month high versus a currency basket.
The euro EUR= hit its lowest level versus the U.S. dollar since June 2009 at $1.3827, according to Reuters data, with analysts expecting the single European currency to remain under pressure.
"The euro remains vulnerable and the market has now turned its attention to Spain and Portugal. Rallies have been short-lived and I am targeting a move towards $1.3745 in the short-term," said BNP currency strategist Ian Stannard.
Traders said moves in the euro could become volatile should ECB President Jean-Claude Trichet make any strong reference to fiscal problems in the euro zone. He will speak after a policy meeting at which the ECB is widely expected to keep interest rates on hold. [nLDE6110RC]
At 1040 GMT, the euro was trading down 0.3 percent on the day at $1.3845. Weakness was attributed to widening in peripheral euro zone bond yield spreads over German benchmarks. [nL9934677]
"Euro/dollar continues to trade off euro zone CDS/bond spreads and looks vulnerable," said ING currency strategist Chris Turner in a note.
STRONG U.S. DATA
Traders sold the single European currency on the view that dismal finances in euro zone countries may hinder any economic improvements in the region, increasing the probability that the U.S. economy may recover faster.
Strong U.S. data this week supported this view ahead of non-farm payrolls numbers due on Friday. A Reuters poll estimates 8,000 jobs were added to the economy last month. [ID:nN03191018]
The dollar .DXY hit a six-month high of 79.715 versus a basket of currencies, trading well above its 200-day moving average. Technical traders said the next resistance was at 80.07, which would be a 38.2 percent Fibonacci retracement of its fall from 89.624 to 74.17 in 2009.
The New Zealand dollar NZD=D4 hit a five-month low of $0.6939 after data showed the country's jobless rate rising to a 10-year high. [ID:nSGE6110KG]
The Australian dollar touched a six-week low of $0.8772 AUD=D4 after Australian retail sales fell more than expected in December. [ID:nSGE6120NF]
Sterling was down 0.3 percent at $1.5845 GBP=D4 before the Bank of England was expected to pause its quantitative easing programme at 1200 GMT. [ID:nLDE6122M4]
Risk-averse traders flocked to the yen, which pushed the dollar JPY= 0.5 percent lower to the day's trough of 90.59 yen. The euro EURJPY=R fell 0.8 percent to 125.50 yen.
Sunday, January 31, 2010
New Zealand Commodity Export Prices Fall on Rising Currency
Feb. 1 -- New Zealand commodity export prices fell for the first time in three months in local currency terms in January amid a decline in returns for dairy products and a gain in the nation’s dollar.
Prices in local dollars fell 1.2 percent from December, according to an index calculated by ANZ National Bank Ltd. New Zealand’s dollar rose to a two-month high during January while dairy prices fell in world markets for the first time in seven months, the Wellington-based bank said in a statement.
Milk powder prices dropped in January for the first time since July, Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said on Jan. 6, citing the results of its monthly auction. Demand for powder has eased as companies have rebuilt inventories, Auckland-based Fonterra said.
Dairy prices fell 2 percent on world markets in January, ANZ said. After adjustment into New Zealand dollars, the price declined 4.1 percent.
Seafood, fruit and vegetable prices also dropped last month, the bank said. In the case of seafood, the currency’s gain wiped out a 2.5 percent jump in world prices.
From a year earlier, prices in the local currency have gained 5 percent, today’s report showed. Still, prices on world markets have surged 37 percent, and the New Zealand dollar’s gains have all but wiped out those benefits.
Prices in local dollars fell 1.2 percent from December, according to an index calculated by ANZ National Bank Ltd. New Zealand’s dollar rose to a two-month high during January while dairy prices fell in world markets for the first time in seven months, the Wellington-based bank said in a statement.
Milk powder prices dropped in January for the first time since July, Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said on Jan. 6, citing the results of its monthly auction. Demand for powder has eased as companies have rebuilt inventories, Auckland-based Fonterra said.
Dairy prices fell 2 percent on world markets in January, ANZ said. After adjustment into New Zealand dollars, the price declined 4.1 percent.
Seafood, fruit and vegetable prices also dropped last month, the bank said. In the case of seafood, the currency’s gain wiped out a 2.5 percent jump in world prices.
From a year earlier, prices in the local currency have gained 5 percent, today’s report showed. Still, prices on world markets have surged 37 percent, and the New Zealand dollar’s gains have all but wiped out those benefits.
Thursday, January 21, 2010
WORLD FOREX: Euro Hits 5-Month Low Vs Dollar On China Data
TOKYO (Dow Jones)--The euro fell to a fresh five-month low against the dollar in Asia Thursday after China's strong economic data heightened speculation Beijing may take further steps to cool its economy, possibly weighing on global equities, commodities and other risk-sensitive assets like the common currency.
Short-term players sold the euro after data showed China's gross domestic product expanded 8.7% in 2009, beating market expectations for 8.5% growth. Separate data showed the country's consumer price index was up 1.9% from a year earlier in December, exceeding expectations for a 1.7% rise and underscoring inflation concerns.
The selling drove the euro down to $1.4067, its lowest level since August 17 last year. Concern that Chinese authorities may take the most recent data as a cue to tighten monetary policy further could continue to weigh on the euro and other commodity-linked currencies like the Australian dollar, dealers said. Thursday's indicators came a day after China's banking regulator said it will rein in new lending this year.
"The China data were strong, so people are now even more anxious over when the authorities might again try to apply the brakes on the economy," said Yasuo Nakayama, manager at Shinkin Central Bank. The figures "put even more downward pressure on the euro," Nakayama added.
At 0450 GMT, the euro stood at $1.4093, below its level late Wednesday in New York at $1.4102. Due to euro's fall, the ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies including the common currency, was up at 78.445 compared to 78.369.
The Chinese currency itself provided news to market players.
Japan's Ministry of Finance issued a formal denial Thursday after media reports said that Finance Minister Naoto Kan had asked his Canadian counterpart Jim Flaherty to raise the issue of China's currency at an upcoming Group of Seven meeting.
Players are now focused on more U.S. corporate earnings statements, dealers said.
"If there are any negative surprises, share markets could head down, and in such a case the euro could easily fall below $1.4000," said Hiroshi Maeba, executive director of foreign exchange trading at Nomura Securities.
Meanwhile, the dollar rose against the yen due to buying by short-term players in Asia. Mild rises in the morning session triggered stop-loss buying orders at Y91.50, sending the unit to an intraday high of Y91.67. At 0450 GMT, it traded hands at Y91.57.
The dollar's rise helped the euro erase earlier losses against the yen on the China data. After touching a low of Y128.52 in the morning session, the common currency stood at Y129.10 compared to Y128.69 late Wednesday in New York.
Short-term players sold the euro after data showed China's gross domestic product expanded 8.7% in 2009, beating market expectations for 8.5% growth. Separate data showed the country's consumer price index was up 1.9% from a year earlier in December, exceeding expectations for a 1.7% rise and underscoring inflation concerns.
The selling drove the euro down to $1.4067, its lowest level since August 17 last year. Concern that Chinese authorities may take the most recent data as a cue to tighten monetary policy further could continue to weigh on the euro and other commodity-linked currencies like the Australian dollar, dealers said. Thursday's indicators came a day after China's banking regulator said it will rein in new lending this year.
"The China data were strong, so people are now even more anxious over when the authorities might again try to apply the brakes on the economy," said Yasuo Nakayama, manager at Shinkin Central Bank. The figures "put even more downward pressure on the euro," Nakayama added.
At 0450 GMT, the euro stood at $1.4093, below its level late Wednesday in New York at $1.4102. Due to euro's fall, the ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies including the common currency, was up at 78.445 compared to 78.369.
The Chinese currency itself provided news to market players.
Japan's Ministry of Finance issued a formal denial Thursday after media reports said that Finance Minister Naoto Kan had asked his Canadian counterpart Jim Flaherty to raise the issue of China's currency at an upcoming Group of Seven meeting.
Players are now focused on more U.S. corporate earnings statements, dealers said.
"If there are any negative surprises, share markets could head down, and in such a case the euro could easily fall below $1.4000," said Hiroshi Maeba, executive director of foreign exchange trading at Nomura Securities.
Meanwhile, the dollar rose against the yen due to buying by short-term players in Asia. Mild rises in the morning session triggered stop-loss buying orders at Y91.50, sending the unit to an intraday high of Y91.67. At 0450 GMT, it traded hands at Y91.57.
The dollar's rise helped the euro erase earlier losses against the yen on the China data. After touching a low of Y128.52 in the morning session, the common currency stood at Y129.10 compared to Y128.69 late Wednesday in New York.
Tuesday, January 19, 2010
RBI permits currency futures in euro, pound, yen
Currently, persons resident in India are permitted only to trade in US Dollar (USD) -INR currency futures contracts in recognized stock exchanges.
It has been decided to permit the recognized stock exchanges to offer currency futures contracts in the currency pairs of Euro-INR, Japanese Yen (JPY)-INR and Pound Sterling (GBP)-INR, in addition to the USD-INR contracts, with immediate effect.
This has been done to facilitate direct hedging of currency risk in other currency pairs.
The move was widely expected following the banking regulator’s announcement of the need for more exchange-traded currency futures during the second quarter review of monetary policy in October last year.
The USD-INR futures are currently traded on three recognised exchanges, the National Stock Exchange (NSE), MCX Stock Exchange and the Bombay Stock Exchange (BSE). However, the currency derivative is liquid only on the first two bourses.
It has been decided to permit the recognized stock exchanges to offer currency futures contracts in the currency pairs of Euro-INR, Japanese Yen (JPY)-INR and Pound Sterling (GBP)-INR, in addition to the USD-INR contracts, with immediate effect.
This has been done to facilitate direct hedging of currency risk in other currency pairs.
The move was widely expected following the banking regulator’s announcement of the need for more exchange-traded currency futures during the second quarter review of monetary policy in October last year.
The USD-INR futures are currently traded on three recognised exchanges, the National Stock Exchange (NSE), MCX Stock Exchange and the Bombay Stock Exchange (BSE). However, the currency derivative is liquid only on the first two bourses.
Euro currency exchange still weak
The euro's presence in currency exchange markets is still suffering from Greece's weak fiscal policy.
Greece's troubled economy is continuing to pull down the single European currency, which dropped to a value of less than 87 pence for one euro at 10:00GMT today (January 18th).
The currency fell against nearly every major world currency and remained at a four-month low against sterling.
Gains in sterling have widely been attributed to its positive comparison against the poor euro performance.
Michael Hewson at CMC Markets told Reuters: "It is symptomatic of the problems in the euro zone that sterling is performing better."
Greece remains under political criticism from other European countries as it struggles to take control of its public finances.
The country's budget deficit has reached 12.7 percent, twice that of the average of the other 15 countries which operate euro as their currency.
Greece's troubled economy is continuing to pull down the single European currency, which dropped to a value of less than 87 pence for one euro at 10:00GMT today (January 18th).
The currency fell against nearly every major world currency and remained at a four-month low against sterling.
Gains in sterling have widely been attributed to its positive comparison against the poor euro performance.
Michael Hewson at CMC Markets told Reuters: "It is symptomatic of the problems in the euro zone that sterling is performing better."
Greece remains under political criticism from other European countries as it struggles to take control of its public finances.
The country's budget deficit has reached 12.7 percent, twice that of the average of the other 15 countries which operate euro as their currency.
Thursday, January 14, 2010
Chavez’s Anti-Dollar Currency to Debut at $1.25, Nacional Says
Jan. 15 -- A regional currency for trade between members of the Alba trade bloc, led by Venezuelan President Hugo Chavez, will first be used this week for a shipment of rice from Venezuela to Cuba, daily El Nacional reported.
Each sucre, as the currency is known, will be worth $1.25, the Caracas-based newspaper said, citing Venezuelan Finance Minister Ali Rodriguez. The accounting unit meant to reduce dependency on the dollar in commercial transactions will not circulate as cash.
Alba was created as an alternative to the U.S.-backed Free Trade Area of the Americas. It is made up of nine countries including Bolivia, Ecuador, Cuba and Nicaragua.
Each sucre, as the currency is known, will be worth $1.25, the Caracas-based newspaper said, citing Venezuelan Finance Minister Ali Rodriguez. The accounting unit meant to reduce dependency on the dollar in commercial transactions will not circulate as cash.
Alba was created as an alternative to the U.S.-backed Free Trade Area of the Americas. It is made up of nine countries including Bolivia, Ecuador, Cuba and Nicaragua.
Yen Drops as Australian Jobs Beat Forecasts and Stocks Advance
Jan. 14 -- The yen weakened against higher- yielding currencies for a second day after an Australian employment report beat analysts’ forecasts and stocks rose in Asia and Europe, boosting demand for riskier assets.
The yen fell versus all 16 of its most-traded peers, and dropping the most against Australia’s dollar, as the MSCI World Index of stocks advanced for a second day. The euro rose against the yen before a meeting of the European Central Bank at which policy makers are likely to keep interest rates unchanged.
“With risk back on, the yen has room to fall,” said Dag Muller, a foreign-exchange analyst in Stockholm with SEB AB, Sweden’s third-biggest bank.
The yen weakened to 85.39 per Australian dollar as of 6:42 a.m. in New York, from 84.45 yesterday. It depreciated to 133.16 per euro, from 132.59, and to 91.85 per dollar, from 91.37. The U.S. currency was at $1.4497 per euro, from $1.4510.
The ECB will leave its main refinancing rate at 1 percent following a meeting today, according to all of the 51 economists in a Bloomberg survey. The decision is scheduled for release at 1:45 p.m. in Frankfurt and central bank President Jean-Claude Trichet will address reporters 45 minutes later.
“The ECB is likely to leave rates and its non-standard measures unchanged,” Michael Hart, a currency strategist for Citigroup Inc. in London, wrote in a note today. “Its language is likely to remain dovish.”
Trichet Concern
The common currency erased a gain versus the dollar on concern Trichet will say the ECB won’t help members with fiscal problems. Greek Finance Minister George Papaconstantinou said today it’s difficult to convince investors about the health of the country’s finances at the moment.
“We could hear some harsh words from Trichet suggesting that the ECB isn’t going to bail out individual governments that have been fiscally irresponsible,” said Ian Stannard, a currency strategist with BNP Paribas SA in London. “Expect the euro to come under pressure.”
The Greek government struggles to rein in a budget deficit that’s still more than four times the European Union’s 3 percent limit of gross domestic product. Trichet said on Dec. 11 that Greece must take “courageous action” on its own.
Australia’s dollar strengthened against all 16 of its most- traded counterparts tracked by Bloomberg after the nation’s statistics bureau said the number of people employed rose 35,200 in December from the previous month. The median estimate of economists surveyed by Bloomberg was for an increase of 10,000. The jobless rate fell to 5.5 percent from a revised 5.6 percent.
‘Strong Data’
“Strong data in Australia are bolstering confidence for another rate increase,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., Japan’s second-largest publicly traded lender.
The odds that the Reserve Bank of Australia will raise its target rate by 25 basis points at its next meeting on Feb. 2 increased to 76 percent, from 60 percent yesterday, according to a Credit Suisse AG index. The MSCI World Index of global stocks rose 0.4 percent.
The yen also weakened after Japanese reports showed producer prices fell for a 12th month and machine orders unexpectedly declined, adding to speculation the government will take more measures to combat deflation and revive growth.
The costs companies pay for energy and unfinished goods tumbled 3.9 percent in December from a year earlier, the Bank of Japan said in Tokyo. Machine orders, an indicator of business investment in three to six months, slid 11.3 percent in November, the Cabinet Office said.
“The basic scenario is for the government to implement monetary easing and fiscal policies to fight deflation,” said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust & Banking Co., a unit of Japan’s largest brokerage. “The trend for yen weakness is likely to remain unchanged.”
Fed’s Dudley
New York Federal Reserve Bank President William Dudley said U.S. rates may remain “low” for at least six months and possibly two years, according to the transcript of an interview with PBS Television’s Nightly Business Report.
Futures trading in Chicago yesterday showed a 34 percent chance the Fed will raise its target lending rate by at least a quarter-percentage point by its June meeting, down from 41 percent odds a week earlier.
Commodity currencies like the Australian dollar also gained after Zheng Xiaosong, director general of the international department at China’s Ministry of Finance, said ending global stimulus programs too early may hurt the recovery.
Chinese Move
China’s central bank on Jan. 12 unexpectedly raised the proportion of deposits banks must set aside as reserves by half a percentage point starting Jan. 18.
“Zheng’s comments aim to ease concerns about China’s early tightening,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “The bias is for commodity currencies to be bought.”
Japanese Finance Minister Naoto Kan said he’s prepared to address China’s currency at a Group of Seven meeting next month, and signaled the Bank of Japan has scope for further action to aid the economy.
“Some nations might bring up the issue of the yuan,” Kan, who took his post last week, told reporters in Tokyo today. “I will listen carefully and express opinions if necessary, as the discussion may have a great impact on Japan’s economy.”
The yen fell versus all 16 of its most-traded peers, and dropping the most against Australia’s dollar, as the MSCI World Index of stocks advanced for a second day. The euro rose against the yen before a meeting of the European Central Bank at which policy makers are likely to keep interest rates unchanged.
“With risk back on, the yen has room to fall,” said Dag Muller, a foreign-exchange analyst in Stockholm with SEB AB, Sweden’s third-biggest bank.
The yen weakened to 85.39 per Australian dollar as of 6:42 a.m. in New York, from 84.45 yesterday. It depreciated to 133.16 per euro, from 132.59, and to 91.85 per dollar, from 91.37. The U.S. currency was at $1.4497 per euro, from $1.4510.
The ECB will leave its main refinancing rate at 1 percent following a meeting today, according to all of the 51 economists in a Bloomberg survey. The decision is scheduled for release at 1:45 p.m. in Frankfurt and central bank President Jean-Claude Trichet will address reporters 45 minutes later.
“The ECB is likely to leave rates and its non-standard measures unchanged,” Michael Hart, a currency strategist for Citigroup Inc. in London, wrote in a note today. “Its language is likely to remain dovish.”
Trichet Concern
The common currency erased a gain versus the dollar on concern Trichet will say the ECB won’t help members with fiscal problems. Greek Finance Minister George Papaconstantinou said today it’s difficult to convince investors about the health of the country’s finances at the moment.
“We could hear some harsh words from Trichet suggesting that the ECB isn’t going to bail out individual governments that have been fiscally irresponsible,” said Ian Stannard, a currency strategist with BNP Paribas SA in London. “Expect the euro to come under pressure.”
The Greek government struggles to rein in a budget deficit that’s still more than four times the European Union’s 3 percent limit of gross domestic product. Trichet said on Dec. 11 that Greece must take “courageous action” on its own.
Australia’s dollar strengthened against all 16 of its most- traded counterparts tracked by Bloomberg after the nation’s statistics bureau said the number of people employed rose 35,200 in December from the previous month. The median estimate of economists surveyed by Bloomberg was for an increase of 10,000. The jobless rate fell to 5.5 percent from a revised 5.6 percent.
‘Strong Data’
“Strong data in Australia are bolstering confidence for another rate increase,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., Japan’s second-largest publicly traded lender.
The odds that the Reserve Bank of Australia will raise its target rate by 25 basis points at its next meeting on Feb. 2 increased to 76 percent, from 60 percent yesterday, according to a Credit Suisse AG index. The MSCI World Index of global stocks rose 0.4 percent.
The yen also weakened after Japanese reports showed producer prices fell for a 12th month and machine orders unexpectedly declined, adding to speculation the government will take more measures to combat deflation and revive growth.
The costs companies pay for energy and unfinished goods tumbled 3.9 percent in December from a year earlier, the Bank of Japan said in Tokyo. Machine orders, an indicator of business investment in three to six months, slid 11.3 percent in November, the Cabinet Office said.
“The basic scenario is for the government to implement monetary easing and fiscal policies to fight deflation,” said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust & Banking Co., a unit of Japan’s largest brokerage. “The trend for yen weakness is likely to remain unchanged.”
Fed’s Dudley
New York Federal Reserve Bank President William Dudley said U.S. rates may remain “low” for at least six months and possibly two years, according to the transcript of an interview with PBS Television’s Nightly Business Report.
Futures trading in Chicago yesterday showed a 34 percent chance the Fed will raise its target lending rate by at least a quarter-percentage point by its June meeting, down from 41 percent odds a week earlier.
Commodity currencies like the Australian dollar also gained after Zheng Xiaosong, director general of the international department at China’s Ministry of Finance, said ending global stimulus programs too early may hurt the recovery.
Chinese Move
China’s central bank on Jan. 12 unexpectedly raised the proportion of deposits banks must set aside as reserves by half a percentage point starting Jan. 18.
“Zheng’s comments aim to ease concerns about China’s early tightening,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “The bias is for commodity currencies to be bought.”
Japanese Finance Minister Naoto Kan said he’s prepared to address China’s currency at a Group of Seven meeting next month, and signaled the Bank of Japan has scope for further action to aid the economy.
“Some nations might bring up the issue of the yuan,” Kan, who took his post last week, told reporters in Tokyo today. “I will listen carefully and express opinions if necessary, as the discussion may have a great impact on Japan’s economy.”
Tuesday, January 12, 2010
Canadian Currency Weakens as Oil Falls, Nation Posts Trade Gap
Jan. 12 -- Canada’s dollar fell the most in almost two weeks as commodities tumbled and the nation unexpectedly posted a trade deficit, spurring speculation the economic recovery may not be as robust as investors anticipated.
The currency, which touched an almost three-month high yesterday, pared its gain for January to 1.3 percent after rising 16 percent last year. Crude oil, Canada’s biggest export, dropped as China moved to curb bank lending. The trade deficit in November was C$344 million ($333 million), a government report showed, compared with a median forecast for a C$500 million surplus in a Bloomberg survey of economists.
“If we’d seen this trade data in any other situation the reaction in the market would have been more muted, but after the good rally we’ve seen, the shorter-term players used it to lock in profits,” said Matthew Strauss, a senior currency strategist in Toronto at Royal Bank of Canada, the nation’s biggest lender.
The Canadian dollar, nicknamed the loonie, depreciated 0.6 percent to C$1.0396 per U.S. dollar at 4:21 p.m. in Toronto, from C$1.0335 yesterday, when it reached C$1.0253, the strongest since Oct. 15. The loonie weakened today as much as 0.8 percent, the most on an intraday basis since Dec. 30. One Canadian dollar buys 96.20 U.S. cents.
Government bonds rose, driving down the yield on Canada’s benchmark 10-year note as much as six basis points, or 0.06 percentage point, to 3.55 percent, the lowest level in three weeks. The price of the 3.75 percent note due in June 2019 gained 40 cents to C$101.54.
‘Risk Aversion’
The loonie fell versus 12 of its 16 most-traded counterparts tracked by Bloomberg, while the U.S. dollar rose against 14.
The yen, the No. 1 performer, climbed 1.8 percent to 87.49 versus the Canadian dollar as China’s central bank said it will raise reserve requirements for the nation’s banks. That increased the likelihood it may increase its benchmark interest rate, which reduced demand for higher-yielding assets.
“With China raising rates, risk aversion really played a factor today,” said Steve Butler, director of foreign-exchange trading in Toronto at Bank of Nova Scotia.
Crude oil for February delivery tumbled 2.4 percent to $80.54 a barrel on the New York Mercantile Exchange. Copper for March delivery plunged as much as 4 percent to $3.305 a pound on the Comex division of the New York Mercantile Exchange. Gold for immediate delivery dropped 2.2 percent to $1,126.10 an ounce after touching $1,161.80 yesterday, the highest since Dec. 8.
Raw materials including oil, copper and gold account for half of Canada’s export revenue.
Strengthened Too Much
The Standard & Poor’s 500 Index dropped 0.9 percent.
“The Canadian dollar strengthened beyond where I think we should have last week,” said Shane Enright, a currency strategist in Toronto at Canadian Imperial Bank of Commerce.
The loonie gained 2.2 percent last week, the most since the five days ended Nov. 13. Its high for yesterday approached the closest it has come to parity with the U.S. dollar, C$1.0207 on Oct. 15, since it last traded on a one-for-one basis with the greenback in July 2008.
The Canadian dollar will reach parity in the next two to three months, RBC’s Strauss predicted.
The currency will weaken to C$1.06 by the end of 2010, according to the median forecast in a Bloomberg survey of 29 analysts and economists.
Rates and Housing
Bank of Canada adviser David Wolf in Ottawa yesterday indicated policy makers won’t soon raise interest rates to cool the nation’s housing market.
The lowest mortgage rates since the Korean War helped fuel a 67 percent increase in existing home sales in November from their January 2009 low. The Bank of Canada cut its benchmark lending rate to 0.25 percent in April and has committed to keeping it there through June unless the inflation outlook shifts to aid a recovery.
“If the bank were to raise interest rates to cool the housing market now -- when inflation is expected to remain below target for the next year and a half -- we would, in essence, be dousing the entire Canadian economy with cold water, just as it emerges from recession,” Wolf said yesterday in Edmonton, Alberta.
Canada’s new-housing price index rose 0.4 percent in November from October, Statistics Canada said today in Ottawa.
Traders trimmed bets on future interest rate increases. The yield on the overnight index swap due in nine months, based on predictions for the Bank of Canada’s rate at that time, dropped to 0.37 percent, from 0.39 percent on Jan. 8 and 0.47 percent at the end of December.
Central-bank policy makers left the benchmark overnight lending rate unchanged at their last meeting in December. They meet next on rates on Jan. 19.
The currency, which touched an almost three-month high yesterday, pared its gain for January to 1.3 percent after rising 16 percent last year. Crude oil, Canada’s biggest export, dropped as China moved to curb bank lending. The trade deficit in November was C$344 million ($333 million), a government report showed, compared with a median forecast for a C$500 million surplus in a Bloomberg survey of economists.
“If we’d seen this trade data in any other situation the reaction in the market would have been more muted, but after the good rally we’ve seen, the shorter-term players used it to lock in profits,” said Matthew Strauss, a senior currency strategist in Toronto at Royal Bank of Canada, the nation’s biggest lender.
The Canadian dollar, nicknamed the loonie, depreciated 0.6 percent to C$1.0396 per U.S. dollar at 4:21 p.m. in Toronto, from C$1.0335 yesterday, when it reached C$1.0253, the strongest since Oct. 15. The loonie weakened today as much as 0.8 percent, the most on an intraday basis since Dec. 30. One Canadian dollar buys 96.20 U.S. cents.
Government bonds rose, driving down the yield on Canada’s benchmark 10-year note as much as six basis points, or 0.06 percentage point, to 3.55 percent, the lowest level in three weeks. The price of the 3.75 percent note due in June 2019 gained 40 cents to C$101.54.
‘Risk Aversion’
The loonie fell versus 12 of its 16 most-traded counterparts tracked by Bloomberg, while the U.S. dollar rose against 14.
The yen, the No. 1 performer, climbed 1.8 percent to 87.49 versus the Canadian dollar as China’s central bank said it will raise reserve requirements for the nation’s banks. That increased the likelihood it may increase its benchmark interest rate, which reduced demand for higher-yielding assets.
“With China raising rates, risk aversion really played a factor today,” said Steve Butler, director of foreign-exchange trading in Toronto at Bank of Nova Scotia.
Crude oil for February delivery tumbled 2.4 percent to $80.54 a barrel on the New York Mercantile Exchange. Copper for March delivery plunged as much as 4 percent to $3.305 a pound on the Comex division of the New York Mercantile Exchange. Gold for immediate delivery dropped 2.2 percent to $1,126.10 an ounce after touching $1,161.80 yesterday, the highest since Dec. 8.
Raw materials including oil, copper and gold account for half of Canada’s export revenue.
Strengthened Too Much
The Standard & Poor’s 500 Index dropped 0.9 percent.
“The Canadian dollar strengthened beyond where I think we should have last week,” said Shane Enright, a currency strategist in Toronto at Canadian Imperial Bank of Commerce.
The loonie gained 2.2 percent last week, the most since the five days ended Nov. 13. Its high for yesterday approached the closest it has come to parity with the U.S. dollar, C$1.0207 on Oct. 15, since it last traded on a one-for-one basis with the greenback in July 2008.
The Canadian dollar will reach parity in the next two to three months, RBC’s Strauss predicted.
The currency will weaken to C$1.06 by the end of 2010, according to the median forecast in a Bloomberg survey of 29 analysts and economists.
Rates and Housing
Bank of Canada adviser David Wolf in Ottawa yesterday indicated policy makers won’t soon raise interest rates to cool the nation’s housing market.
The lowest mortgage rates since the Korean War helped fuel a 67 percent increase in existing home sales in November from their January 2009 low. The Bank of Canada cut its benchmark lending rate to 0.25 percent in April and has committed to keeping it there through June unless the inflation outlook shifts to aid a recovery.
“If the bank were to raise interest rates to cool the housing market now -- when inflation is expected to remain below target for the next year and a half -- we would, in essence, be dousing the entire Canadian economy with cold water, just as it emerges from recession,” Wolf said yesterday in Edmonton, Alberta.
Canada’s new-housing price index rose 0.4 percent in November from October, Statistics Canada said today in Ottawa.
Traders trimmed bets on future interest rate increases. The yield on the overnight index swap due in nine months, based on predictions for the Bank of Canada’s rate at that time, dropped to 0.37 percent, from 0.39 percent on Jan. 8 and 0.47 percent at the end of December.
Central-bank policy makers left the benchmark overnight lending rate unchanged at their last meeting in December. They meet next on rates on Jan. 19.
Monday, January 11, 2010
Indian Rupee Falls Most in 3 Weeks as Importers May Buy Dollars
Jan. 12 -- India’s rupee fell on speculation local importers will increase dollar purchases to take advantage of the local currency’s gain to a 15-month high.
The rupee dropped the most in more than three weeks as the Dollar Index, which tracks the greenback against those of six major trading partners, rose 0.2 percent. The rupee has strengthened 2.3 percent since Dec. 31, extending a 4.8 percent advance last year.
“Dollar demand is likely to increase as the levels look attractive for importers,” said Jaiprakash Israni, a currency trader in Mumbai at state-owned Andhra Bank. “The rupee is weaker in the offshore market too as the dollar index has risen.”
The rupee slid 0.3 percent to 45.46 per dollar as of 10:47 a.m. in Mumbai, according to data compiled by Bloomberg. It reached 45.2750 yesterday, the highest level since September 2008. The currency may trade between 45.35 and 45.75 today, Israni said.
Offshore contracts indicate bets the rupee will trade at 45.49 to the dollar in a month, compared with expectations of 45.33 at the end of last week. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
The rupee dropped the most in more than three weeks as the Dollar Index, which tracks the greenback against those of six major trading partners, rose 0.2 percent. The rupee has strengthened 2.3 percent since Dec. 31, extending a 4.8 percent advance last year.
“Dollar demand is likely to increase as the levels look attractive for importers,” said Jaiprakash Israni, a currency trader in Mumbai at state-owned Andhra Bank. “The rupee is weaker in the offshore market too as the dollar index has risen.”
The rupee slid 0.3 percent to 45.46 per dollar as of 10:47 a.m. in Mumbai, according to data compiled by Bloomberg. It reached 45.2750 yesterday, the highest level since September 2008. The currency may trade between 45.35 and 45.75 today, Israni said.
Offshore contracts indicate bets the rupee will trade at 45.49 to the dollar in a month, compared with expectations of 45.33 at the end of last week. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
Thursday, January 7, 2010
Yen remains steady
TOKYO - THE yen was steady in Asia on Friday after Japan's new finance minister said markets should determine exchange rates, while hinting at possible intervention if the currency shoots higher again.
'Basically, the market determines foreign exchange rates', Mr Naoto Kan said at a news conference. As finance minister, however, it was his duty 'to take action on foreign exchange when necessary', he added.
Mr Kan's remarks came a day after he rattled markets with a call for a weaker yen, prompting a thinly veiled rebuke from Prime Minister Yukio Hatoyama, who warned him not to publicly comment on currency levels. 'The government basically should not discuss foreign exchange,' PM Hatoyama told reporters. 'Regarding foreign exchange, stability is desirable.'
The dollar stood at 93.28 yen in Tokyo early afternoon trade, against 93.25 in New York late on Thursday, when the Japanese currency had fallen sharply. The euro was little changed at US$1.4316 after 1.4318 and at 133.48 against 133.50.
Mr Kan's comment on Thursday that he wanted to see the yen weaken further was widely seen as a signal that Tokyo was toughening its stance against the currency's strength, which is bad for exporters.
'The market confirmed the new finance minister's stance of favouring a weaker yen, so the dollar is staying higher,' said Mr Hideaki Inoue, chief foreign exchange manager at Mitsubishi UFJ Trust and Banking.
'Basically, the market determines foreign exchange rates', Mr Naoto Kan said at a news conference. As finance minister, however, it was his duty 'to take action on foreign exchange when necessary', he added.
Mr Kan's remarks came a day after he rattled markets with a call for a weaker yen, prompting a thinly veiled rebuke from Prime Minister Yukio Hatoyama, who warned him not to publicly comment on currency levels. 'The government basically should not discuss foreign exchange,' PM Hatoyama told reporters. 'Regarding foreign exchange, stability is desirable.'
The dollar stood at 93.28 yen in Tokyo early afternoon trade, against 93.25 in New York late on Thursday, when the Japanese currency had fallen sharply. The euro was little changed at US$1.4316 after 1.4318 and at 133.48 against 133.50.
Mr Kan's comment on Thursday that he wanted to see the yen weaken further was widely seen as a signal that Tokyo was toughening its stance against the currency's strength, which is bad for exporters.
'The market confirmed the new finance minister's stance of favouring a weaker yen, so the dollar is staying higher,' said Mr Hideaki Inoue, chief foreign exchange manager at Mitsubishi UFJ Trust and Banking.
Wednesday, January 6, 2010
Aussie Dollar Rises to 25-Year High Versus Pound on Commodities
Jan. 7 -- The Australian dollar climbed to the strongest in 25 years versus the pound and rose against all 16 major currencies as commodity prices gained and retail sales grew more than four times as fast as economists had estimated.
The so-called Aussie touched a two-year high against the euro after the Bureau of Statistics said retail sales climbed 1.4 percent from October, when they gained a revised 0.4 percent. New Zealand’s currency reached the most in two months versus the yen as the nation posted its narrowest annual trade shortfall in more than seven years.
“It’s all about the commodity story at the moment and today’s retail sales data may get the market excited about more rate hikes in Australia,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Sydney. “If we can make a clear break above 58 pence, people have got to start thinking about the 60-level as a realistic possibility.”
Australia’s dollar touched 57.655 pence, the most since March 1985, before trading at 57.577 at 4:58 p.m. in Sydney. It bought 84.89 yen after earlier reaching 85.55 yen, the highest since Sept. 29, 2008. The currency gained 0.1 percent to 92.08 U.S. cents, near the strongest since Dec. 4, from 91.98 cents in New York. It touched 0.6416 euro, the most since November 2007.
New Zealand’s dollar bought 73.72 U.S. cents from 73.78 cents in New York yesterday. It traded at 67.97 yen and reached 68.58 yen, the most since Oct. 27.
Fed Minutes
Demand for Australia’s dollar was also boosted after minutes of a Federal Reserve meeting released yesterday showed policy makers debated extending stimulus measures. Swaps traders raised to 62 percent the chance that Australia’s central bank will increase interest rates when it meets on Feb. 2, from 54 percent yesterday, when according to a Credit Suisse AG index.
“Our forecasts have the Aussie heading back toward last year’s highs near 94 cents in the first quarter,” said Amber Rabinov, an economist in Melbourne at Australia & New Zealand Banking Group Ltd.
The Reuters/Jefferies CRB Index of commodities yesterday climbed for a third day to the strongest level since October 2008. Crude oil, Australia’s fourth most-valuable commodity export, gained for a 10th day yesterday in the longest stretch since February 1996. Commodities account for more than half of Australia’s and New Zealand’s overseas shipments.
Trade Deficit
Australia’s trade deficit narrowed in November with the shortfall at A$1.7 billion ($1.6 billion) from a revised A$2.08 billion in October, the Bureau of Statistics said.
The Australian dollar has been the second best-performing currency against the euro over the past three months among the 16 most-traded. Demand for the euro has waned on speculation Greece’s fiscal problems may also engulf Spain, Ireland and other nations that share the common currency.
“The Aussie doesn’t suffer from the same concerns on the fiscal side that Europe does,” said Sean Callow, a senior currency strategist at Westpac in Sydney. “There’s no obvious barrier to a test of 65 euro cents.” That would be the most the Australian dollar has traded at since September 2000.
New Zealand’s annual trade deficit narrowed to NZ$846 million ($624 million) in the 12 months ended Nov. 30 from a revised NZ$1.17 billion in the year through October, the statistics bureau said today. The shortfall was the least since September 2002.
“The possibility of near-term Reserve Bank of New Zealand hikes cannot be completely ruled out” after the trade figures signaled fourth quarter growth may show an improvement over the previous three-month period, wrote Eric Lascelles, Toronto-based chief economics and rates strategist at Toronto-Dominion Bank, Canada’s second-biggest lender.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 4.59 percent from 4.55 percent yesterday. Australian government bonds were little changed with the yield on 10-year notes at 5.65 percent, according to data compiled by Bloomberg.
The so-called Aussie touched a two-year high against the euro after the Bureau of Statistics said retail sales climbed 1.4 percent from October, when they gained a revised 0.4 percent. New Zealand’s currency reached the most in two months versus the yen as the nation posted its narrowest annual trade shortfall in more than seven years.
“It’s all about the commodity story at the moment and today’s retail sales data may get the market excited about more rate hikes in Australia,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Sydney. “If we can make a clear break above 58 pence, people have got to start thinking about the 60-level as a realistic possibility.”
Australia’s dollar touched 57.655 pence, the most since March 1985, before trading at 57.577 at 4:58 p.m. in Sydney. It bought 84.89 yen after earlier reaching 85.55 yen, the highest since Sept. 29, 2008. The currency gained 0.1 percent to 92.08 U.S. cents, near the strongest since Dec. 4, from 91.98 cents in New York. It touched 0.6416 euro, the most since November 2007.
New Zealand’s dollar bought 73.72 U.S. cents from 73.78 cents in New York yesterday. It traded at 67.97 yen and reached 68.58 yen, the most since Oct. 27.
Fed Minutes
Demand for Australia’s dollar was also boosted after minutes of a Federal Reserve meeting released yesterday showed policy makers debated extending stimulus measures. Swaps traders raised to 62 percent the chance that Australia’s central bank will increase interest rates when it meets on Feb. 2, from 54 percent yesterday, when according to a Credit Suisse AG index.
“Our forecasts have the Aussie heading back toward last year’s highs near 94 cents in the first quarter,” said Amber Rabinov, an economist in Melbourne at Australia & New Zealand Banking Group Ltd.
The Reuters/Jefferies CRB Index of commodities yesterday climbed for a third day to the strongest level since October 2008. Crude oil, Australia’s fourth most-valuable commodity export, gained for a 10th day yesterday in the longest stretch since February 1996. Commodities account for more than half of Australia’s and New Zealand’s overseas shipments.
Trade Deficit
Australia’s trade deficit narrowed in November with the shortfall at A$1.7 billion ($1.6 billion) from a revised A$2.08 billion in October, the Bureau of Statistics said.
The Australian dollar has been the second best-performing currency against the euro over the past three months among the 16 most-traded. Demand for the euro has waned on speculation Greece’s fiscal problems may also engulf Spain, Ireland and other nations that share the common currency.
“The Aussie doesn’t suffer from the same concerns on the fiscal side that Europe does,” said Sean Callow, a senior currency strategist at Westpac in Sydney. “There’s no obvious barrier to a test of 65 euro cents.” That would be the most the Australian dollar has traded at since September 2000.
New Zealand’s annual trade deficit narrowed to NZ$846 million ($624 million) in the 12 months ended Nov. 30 from a revised NZ$1.17 billion in the year through October, the statistics bureau said today. The shortfall was the least since September 2002.
“The possibility of near-term Reserve Bank of New Zealand hikes cannot be completely ruled out” after the trade figures signaled fourth quarter growth may show an improvement over the previous three-month period, wrote Eric Lascelles, Toronto-based chief economics and rates strategist at Toronto-Dominion Bank, Canada’s second-biggest lender.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 4.59 percent from 4.55 percent yesterday. Australian government bonds were little changed with the yield on 10-year notes at 5.65 percent, according to data compiled by Bloomberg.
Tuesday, January 5, 2010
Foreign currency exchange may be driven by world's tallest building
The tallest tower in the world was unveiled in Dubai yesterday (January 4th) and it may encourage foreign currency exchange as travellers look to visit the emirate.
Standing at 828 metres tall, the Burj Khalifa tower is bigger than any other building and also hosts the world's highest observation deck on the 124th floor.
Tom Hall, travel editor at Lonely Planet, suggested it could be quite a good year "to go to snag a bargain" in Dubai.
He said: "It's certainly already very attractive in terms of flight prices to get there because emirates are very keen that people should use it as a transit hub and go there as a short break destination."
According to research carried out by travel site simonseeks.com more than half of those who holidayed in the UK last year plan to travel abroad in 2010.
Standing at 828 metres tall, the Burj Khalifa tower is bigger than any other building and also hosts the world's highest observation deck on the 124th floor.
Tom Hall, travel editor at Lonely Planet, suggested it could be quite a good year "to go to snag a bargain" in Dubai.
He said: "It's certainly already very attractive in terms of flight prices to get there because emirates are very keen that people should use it as a transit hub and go there as a short break destination."
According to research carried out by travel site simonseeks.com more than half of those who holidayed in the UK last year plan to travel abroad in 2010.
Japanese Yen Leads Major Currencies Higher Against US Dollar on Repatriation
The Yen surged against the US Dollar late into Asian trading amid rumors of large-scale repatriation by Japanese exporters, setting off a wave of selling that weighed on the greenback against most of its major counterparts.
The Euro and the British Pound rose gently higher in Asian trading, adding 0.3% apiece against the US Dollar. We remain short EURUSD at 1.4881 and short GBPUSD at 1.6648.
Currency markets saw quiet trading for much of the overnight session until rumors of large-scale repatriation by Japanese exporters pushed the Yen higher against the US Dollar, reverberating across the majors and weighing on the greenback against most of its top counterparts. The Japanese unit gained as much as 0.9%, leading USDJPY back below the 92.00 level. The broader Dollar Index, a gauge of the buck’s average value against six of the world’s most-traded currencies, declined 0.4% to trade at the lost level in over two weeks.
The Euro and the British Pound rose gently higher in Asian trading, adding 0.3% apiece against the US Dollar. We remain short EURUSD at 1.4881 and short GBPUSD at 1.6648.
Currency markets saw quiet trading for much of the overnight session until rumors of large-scale repatriation by Japanese exporters pushed the Yen higher against the US Dollar, reverberating across the majors and weighing on the greenback against most of its top counterparts. The Japanese unit gained as much as 0.9%, leading USDJPY back below the 92.00 level. The broader Dollar Index, a gauge of the buck’s average value against six of the world’s most-traded currencies, declined 0.4% to trade at the lost level in over two weeks.
Sunday, January 3, 2010
Dollar Trades Near Four-Month High Versus Yen on Risk Appetite
Jan. 4 -- The dollar traded near a four-month high against the yen as signs the U.S. recovery is strengthening buoyed demand for assets in the world’s biggest economy.
The U.S. currency rose to a one-week high against the euro before reports this week forecast to show that U.S. manufacturing, which accounts for about 12 percent of the economy, expanded for a fifth month and factory bookings increased. The British currency fell after the Sunday Telegraph reported that U.K. Business Secretary Peter Mandelson said the pound’s devaluation aided Britain’s economy in the recession.
“Good U.S. data are giving investors more confidence in the greenback,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd. “The dollar is likely to trade with a firm tone.”
The dollar was at 92.88 yen at 11:28 a.m. in Tokyo from 93.02 yen in New York on Dec. 31 when it touched 93.15 yen, the highest level since Sept. 7. The yen was worth 132.66 per euro from 133.20 yen last week. The dollar gained to $1.4285 per euro, compared with $1.4321 on Dec. 31, after earlier touching $1.4262, the strongest level since Dec. 23.
The pound slid to $1.6090 from $1.6170 on Dec. 31.
The U.S. Institute for Supply Management will report today its factory index rose in December to 54 from 53.6 the prior month, according to a Bloomberg News survey. The gauge has surpassed the breakeven level of 50 since August.
A separate report from the Commerce Department tomorrow will show factory bookings increased 0.5 percent in November after rising 0.6 percent the previous month, according to economists surveyed.
Annual Advance
The Dollar Index climbed as much as 0.4 percent, the most in more than two weeks, as prospects for better manufacturing and an improved job market stoked speculation the Federal Reserve will start raising ahead of other central banks.
Futures trading in Chicago showed a 60 percent chance that the Fed will increase its zero to 0.25 percent target lending rate by at least a quarter-percentage point by its June meeting, compared with 31 percent odds a month ago.
The yen has weakened 2.4 percent versus the dollar in the past month as the Bank of Japan said Dec. 18 it was intolerant of price declines amid signs deflation may undermine the economic recovery.
BOJ Governor Masaaki Shirakawa said on Dec. 24 his policy board is ready to act to support growth, and some strategists are predicting that will result in a flood of Japanese currency that will weaken the yen.
U.S. Rates
“The dollar continued to rise against the yen on prospects for higher U.S. official rates this year and the potential for Japan to embark on aggressive quantitative easing to fight deflation in prices,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in research note today.
The U.S. currency rose 2.6 percent against the yen in 2009 as the yield premium of 10-year Treasury notes over similar- maturity Japanese bonds rose last week to the highest level in more than two years, making U.S. debt more appealing than Japan’s securities.
Losses in the yen were tempered by speculation Japanese exporters were taking advantage of the past month’s decline to bring home foreign earnings.
Japanese Exporters
“There is talk exporters are buying the yen, which has fallen to attractive levels relative to the rates budgeted,” said Takashi Kudo, general manager of market information service in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.
Large Japanese manufacturers expect the yen to average 91.16 per dollar in the six months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released last month.
The British currency fell for a second day versus the dollar on concerns that U.K. policy makers want a weak currency to revive the nation’s economy.
Sterling, which declined 19 percent against the dollar in the 2008-2009 period, has aided the U.K., the Telegraph cited Mandelson as saying. The business secretary praised the Bank of England for its asset-purchase program, the newspaper said.
“The article suggests the U.K. may prefer currency weakness this year,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “It’s a pound-negative.”
Pacific Investment Management Co., which runs the world’s biggest bond fund, is cutting holdings of U.K. and U.S. debt as borrowing rises in the nations, the company said in a report on its Web site.
The U.S. currency rose to a one-week high against the euro before reports this week forecast to show that U.S. manufacturing, which accounts for about 12 percent of the economy, expanded for a fifth month and factory bookings increased. The British currency fell after the Sunday Telegraph reported that U.K. Business Secretary Peter Mandelson said the pound’s devaluation aided Britain’s economy in the recession.
“Good U.S. data are giving investors more confidence in the greenback,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd. “The dollar is likely to trade with a firm tone.”
The dollar was at 92.88 yen at 11:28 a.m. in Tokyo from 93.02 yen in New York on Dec. 31 when it touched 93.15 yen, the highest level since Sept. 7. The yen was worth 132.66 per euro from 133.20 yen last week. The dollar gained to $1.4285 per euro, compared with $1.4321 on Dec. 31, after earlier touching $1.4262, the strongest level since Dec. 23.
The pound slid to $1.6090 from $1.6170 on Dec. 31.
The U.S. Institute for Supply Management will report today its factory index rose in December to 54 from 53.6 the prior month, according to a Bloomberg News survey. The gauge has surpassed the breakeven level of 50 since August.
A separate report from the Commerce Department tomorrow will show factory bookings increased 0.5 percent in November after rising 0.6 percent the previous month, according to economists surveyed.
Annual Advance
The Dollar Index climbed as much as 0.4 percent, the most in more than two weeks, as prospects for better manufacturing and an improved job market stoked speculation the Federal Reserve will start raising ahead of other central banks.
Futures trading in Chicago showed a 60 percent chance that the Fed will increase its zero to 0.25 percent target lending rate by at least a quarter-percentage point by its June meeting, compared with 31 percent odds a month ago.
The yen has weakened 2.4 percent versus the dollar in the past month as the Bank of Japan said Dec. 18 it was intolerant of price declines amid signs deflation may undermine the economic recovery.
BOJ Governor Masaaki Shirakawa said on Dec. 24 his policy board is ready to act to support growth, and some strategists are predicting that will result in a flood of Japanese currency that will weaken the yen.
U.S. Rates
“The dollar continued to rise against the yen on prospects for higher U.S. official rates this year and the potential for Japan to embark on aggressive quantitative easing to fight deflation in prices,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in research note today.
The U.S. currency rose 2.6 percent against the yen in 2009 as the yield premium of 10-year Treasury notes over similar- maturity Japanese bonds rose last week to the highest level in more than two years, making U.S. debt more appealing than Japan’s securities.
Losses in the yen were tempered by speculation Japanese exporters were taking advantage of the past month’s decline to bring home foreign earnings.
Japanese Exporters
“There is talk exporters are buying the yen, which has fallen to attractive levels relative to the rates budgeted,” said Takashi Kudo, general manager of market information service in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.
Large Japanese manufacturers expect the yen to average 91.16 per dollar in the six months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released last month.
The British currency fell for a second day versus the dollar on concerns that U.K. policy makers want a weak currency to revive the nation’s economy.
Sterling, which declined 19 percent against the dollar in the 2008-2009 period, has aided the U.K., the Telegraph cited Mandelson as saying. The business secretary praised the Bank of England for its asset-purchase program, the newspaper said.
“The article suggests the U.K. may prefer currency weakness this year,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “It’s a pound-negative.”
Pacific Investment Management Co., which runs the world’s biggest bond fund, is cutting holdings of U.K. and U.S. debt as borrowing rises in the nations, the company said in a report on its Web site.
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