Safe haven currencies JPY and USD rose broadly as traders and investors look to cut risk over the latest slew of financial information. The JPY surged after a report from the Ministry of Finance showed Japan posting a current account surplus of 1.398 trillion yen for the month of Nov. Analysts also commented that the yen would return to being the funding currency of choice after a strong US job data release on Friday.
Dubai debt issues deepened after Moody’s downgraded six Dubai-linked issuers after they concluded that no “meaningful” government support would be provided for firms like DP World. Renewed worries discourages risk appetite and lifted the US dollar as investors unwound “carry trades” that involves borrowing the US currency at low rates to finance purchases of higher-yielding currencies and assets.
Sterling weakened on Tuesday over deepening concerns of Britain’s financial health, poor economic data and a hefty fall in the RBS shares. Sterling fell to a six-week low of $1.6254 against the USD as traders eargerly await on the upcoming UK pre-budget report (PBR) in which finance minister Alistair Darling is expected to give more information on how he will reduce the 175 billion pound budget deficit. Britain’s borrowing has captured the attention of ratings agency Moody’s Investors Services as they released a report on the fiscal challenges facing governments of triple-A rated countries like UK and commented their current fiscal position which “may test the AAA boundaries”. Meanwhile, Royal Bank of Scotland shares fell almost 10 percent earlier in the day as fresh worries loom as its board could resign over a bonus dispute with the government.
“Those two stories have people concerned about the UK,” said Geoff Kendrick, currency strategist at UBS in London. Next up on the radar will be the Bank of England’s policy meeting on thursday in which they are widely expected to maintain it unmoved at 0.5%.
By Ho Canjie(CJ), Corporate FX Dealer
]]>The USD continues to advance against the EUR against the backdrop of strong job data that were released last week and speculations that the Federal Reserve may cut short its stimulus plans. “Bernanke suspects we will grow below normal recovery standards, and that pace could be around awhile,” said Gregory Miller, chief economist at SunTrust Banks Inc. in Atlanta.
“Fed policy may stay where it is, essentially zero, for some time. There are serious risks out there.” USD climbed to the highest level in almost a month versus the euro yesterday after Federal Reserve Chairman Ben S. Bernanke said the U.S. faces “formidable headwinds.”
“The economy confronts some formidable headwinds that seem likely to keep the pace of expansion moderate,” Bernanke, 55, said yesterday in a speech to the Economic Club of Washington. He said inflation remains “subdued” and might even move lower.
“We still have some way to go before we can be assured that the recovery will be self-sustaining,” the Fed Chairman added. “My best guess at this point is that we will continue to see modest economic growth next year — sufficient to bring down the unemployment rate, but at a pace slower than we would like.”
Against USD yesterday, Eur opened at 1.4852, down to a low of 1.4855 and closed at 1.4819.
By Agnes Chong, Account Manager
]]>Investors were in for a surprise on Friday after government release report that there were less than expected job cuts in Nov causing the USD to advance and prompting news that Federal Reserve may raise interest rates. Investors were buying on expectations that a ‘maybe’ rising rates situation will make US assets more lucrative.
11,000 jobs were cut in November, dramatically below expectation. “What the job numbers do is firm up expectations that a Fed interest-rate hike is coming,” said Camilla Sutton, a strategist in Toronto at Bank of Nova Scotia, the nation’s third-largest lender. “That should be a strong-dollar story.”
Yen dropped 2.5 per cent against the USD with news on Dec. 4 after America’s Labor Department said employers cut the fewest jobs since the recession began. The yen dipped 4.5 percent against USD for the week, the most since February 1999 and retreating from a 14-year high. Traders sold yen and bought dollars on speculation interest rates in the U.S. will increase within the next 6 months. “The improving U.S. jobs market suggests the Federal Reserve won’t stand pat on interest rates longer than the Bank of Japan,” said Kazutoshi Yasuda, general manager of the markets department in Tokyo at FX Prime Corp., a unit of Itochu Corp.
Against USD on Friday, JPY opened at 88.29, dipped to a low of 87.97 while closing at 90.43.
Against SGD, JPY opened at 0.01564, hit a high of 0.015716 and slided to a low of 0.015284 while closing at 0.015337.
By Agnes Chong, Account Manager
]]>Traders took Bank of Japan’s new monetary policy as a cue to sell the currency with concerns over further intervention should the JPY get too strong. The yen weakened broadly while investors shifted their attention elsewhere. While analysts doubt BOJ’s new liquidity measures in combating deflation and keeping short-term rates down will slow the fall in USD/JPY for extended periods, the steps have been adequate to prompt position squaring and profit taking.
Japan’s Vice Finance Minister Rintaro Tamaki, who is head of international affairs including currency policy, met with U.S. Treasury officials this week in Washington and they may have discussed the yen’s advance to a 14-year high. Japan should ask the U.S. and Europe to take coordinated action to weaken the yen, Financial Services Minister Shizuka Kamei said in an interview in Tokyo yesterday. “We need international coordination,” said Kamei, whose People’s New Party is a coalition partner to the Democratic Party of Japan. He has urged Finance Minister Hirohisa Fujii to seek international cooperation to halt the yen’s rally.
The strong yen damages the Japanese economy which is mainly export driven and has made Japanese products more expensive to consumers in a recovering global economy.
Gold remains the favourite safe haven and extended its trend through $1,200 per ounce during Asian trading overnight. The US dollar held its ground against most major currencies. US Fed released their Beige Book, which is a report on economic conditions and showed that 8 out of the 12 districts in the book reported a pick up in economic activity. The remaining 4 showed little change to previous reports. The report gives little reason for the Fed to move interest rates from their current record lows when they meet in two weeks with little inflation concerns.
By Brett Lim, Corporate FX Dealer
]]>The Reserve Bank of Australia increased interest rates for the 3rd session running by 0.25% bringing it to 3.75%. As a result of this bullish move, both the AUD and NZD reacted by gaining strongly against other major currencies.
“As economic data continue to surprise to the upside, the recovery bulls have the upper hand and this is good for risk appetite and bad for the dollar,” said Boris Schlossberg, director of currency research at GFT in New York.
With worries about Dubai’s debt problems receding, the risk adverse US dollar suffered from a mild contraction as investors and traders started hunting for higher yielding riskier options like commodites and equities.
The Bank of Japan held an emergency meeting yesterday and pledged 10 trillion yen in 3 month funds at 0.1% interrest rate. This was in an attempt to relieve governement preassure before upper house polls next year.
Analysts said the funds would do little to tackle deflation, although by lowering lending rates they may curb the yen’s recent rally, a welcome relief to suffering exporters from the strong yen. “If the BOJ were free from pressure, they wouldn’t have done anything, because they’ve been saying their assessment hasn’t changed,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets in Hong Kong.
By Ho Canjie(CJ), Corporate FX Dealer
]]>The credibility of the United Arab Emirates finance sector will suffer unless the authorities and lenders move quickly to assuage fears that Dubai’s debt troubles are spiraling out of control, analysts and bankers say.
Dubai, one of the seven emirates that make up the UAE, said on Wednesday it planned to restructure one of its holding companies, a shock announcement that triggered global concerns about the emirate’s ability to meet its debt obligations.
International banks’ exposure related to Dubai World amounts to $12 billion in syndicated and bilateral loans, banking sources told Thomson Reuters. Regional banks such as Emirates NBD and Mashreq Bank, which play a pivotal role in funding the UAE economy, have not made public statements yet on their exposure. “Dubai World and its entities account for a very large chunk of the Dubai economy and its indebtedness and we expect Emirates NBD to have a full share of that,” Madha said. Officials at the Dubai-based bank could not be reached for comment.
UAE banks are exacerbating the situation by remaining silent on their exposures, said another banking analyst at a large international bank, who requested not be named. “Unless there is clarity from banks, people will just make up numbers, which is worse,” he said. “On the whole, the reputation has been damaged.”
The dollar slipped against major currencies on Tuesday as investors took the view that Dubai debt woes will likely be contained, reducing safety bids for the greenback, while the market awaited Australia’s interest rate decision.
Government-controlled Dubai World said a restructuring would involve $26 billion, a number which may help markets get to grips with the scope of the crisis following estimates that restructuring could affect $59 billion or more in liabilities.
“The overall picture of Dubai’s debt problems remains unclear. So investors are still cautious although fears have waned,” said Kazuyuki Takami, senior manager of foreign exchange trading department at Bank of Tokyo-Mitsubishi UFJ.
The dollar index, a gauge of the greenback’s performance against six other major currencies, fell 0.2 percent to 74.736 although it remained above a 15-month low of 74.170 set last week.
The dollar’s long-term weakness is expected to continue as investors believe U.S. interest rates will remain low for a prolonged period but it could get support from repatriation flows at the year-end, dealers said.
By Ivan Heng, Account Manager
]]>Within Dubai’s debt crisis, Yen hit a 14 year high gainst USD causing the global stocks to plunge and prompting market players to exit risky trades buying safe-haven Yen. Finance Minister Hirohisa Fujii said on Nov. 27 in Tokyo his nation will “do what is necessary” and he may contact U.S. and European officials to act, raising speculation that officials will intervene in foreign-exchange markets for the first time since 2004.
“Dollar-yen at the moment is very much a momentum play,” said Henrik Gullberg, a foreign-exchange strategist at Deutsche Bank AG in London. “Right now Japan needs demand from abroad in terms of stimulus for the economy. The timing isn’t very good for a significant yen appreciation when the real economy is in the current fragile state.”
Last Friday, against USD, Yen opened at 86.55, soared to a high of 87.01 and sled to a low of 84.81.
Against SGD, Yen opened at 1.5989, hit a high of 1.6368 while closing at 1.6029.
Some of the largest swings in the Forex markets during the past years credit crisis was caused by the unwinding of a massive carry-trade where global market players had sold JPY to invest in higher yielding vehicles. The unwinding of that trade caused huge volatility - it took years to put the trade on and the margin clerks unwound it in weeks/months.
With US interest rates effectively at zero, there has been a new carry-trade in vogue with the USD substituted for JPY. The huge amounts of easy money pumped into the world system have been funneled into this new carry-trade for what appears to be ‘easy-money’.
It is indeed easy, provided all participants do not try to run for the exit at the same time. With news of Dubai effectively declaring bankruptcy, many very savvy market players are cautioning that the situation could be a catalyst for a rapid unwinding of this trade. If that happens, there will be an exit from high-yielders (AUD, NZ, CAD, etc) and a repurchasing of USD. This would bring buyers back into the market for the USD and if it happens quickly, could create a short-squeeze that feeds on itself, similar to what was experienced a year ago.
This scenario may not happen, as the cheerleaders on TV have been expounding all weekend, Dubai may indeed be a short-term headline. But smart money is also cautious money and a lot of smart players are moving to the sidelines to make sure they are not caught in a stampede for the fire-exit. Keep an eye on USD - it spiked on some panic buying on Friday. If it now continues to show increasing strength then you may consider hedging appropriately as the carry-trade margin-calls and resulting unwinding could go much further than would initially appear warranted.
By Agnes Chong, Account Manager
]]>USD weakened against the EUR with speculation that the Federal Reserve will keep its stimulus measures in place and interest rate is expected to remain low. The USD declined against a basket of currencies after Fed Bank of St. Louis President James Bullard said he supported extending the central bank’s purchases of mortgage-backed securities beyond the first quarter of next year. With commodities and Asian stocks climbing, boosting demand for higher-yielding assets, the greenback declined.
“The Fed is unlikely to hike rates as there don’t seem to be clear exit strategies,” said Norifumi Yoshida, vice president of the trading section at Mizuho Corporate Bank Ltd. in Singapore. “Gold is rising and the medium-term trend to buy higher-yielding currencies and sell the dollar is intact.”
In his speech, Bullard said “unemployment is high, and labor markets are lagging,” while repeating his view that economic recovery in the U.S. has started.
Against USD yesterday EUR opened at 1.48858, scaled a high of 1.5001 and closed at 1.4957. Against SGD, Eur opened at 2.0633, hit a high of 2.0766 and closed at 2.0708.
“Amidst a holiday-shortened Thanksgiving week, markets may continue to take risk off the table in the absence of strong positive cues from equities, leaving the majors vulnerable to further retracements,” Emmanuel Ng, an economist in Singapore at Oversea-Chinese Banking Corp., wrote in a research note today.
By Agnes Chong, Account Manager
]]>International pressure on China to lift the value of its yuan against the dollar could stoke risks to growth in 2010, an economist at a top state thinktank has said, warning of a deepening dilemma facing currency policy. Yu Bin, head of macro-economic research at the State Council Development Research Center, told a meeting in Beijing the nation could enjoy annual growth of over 8.5 percent next year, but currency pressures, falling consumer demand and other worries could erode that growth, the Hong Kong-based Wen Wei Po newspaper reported.
Yu’s warning of a currency “dilemma” confronting Chinese policy-makers underscored the tricky choices they face in navigating between foreign calls to let the yuan rise against the dollar and domestic fears that such a move could pummel exporters and drag down growth.
China allowed the yuan to rise 21 percent against the dollar between July 2005 and July 2008 before effectively repegging the yuan to help its exporters cope with a slump in global demand.
Beijing now faces mounting international calls to let the yuan rise on the grounds that it is undervalued and stoking imbalances with other big economies, but it showed no public sign of budging during last week’s visit by U.S. President Barack Obama.
Yu told the meeting on Saturday that the Chinese economy faced risks if the dollar continues to depreciate against other major currencies, and from pressure to let the yuan rise in value against the dollar.
“China is stuck in a dilemma,” he said, according to the paper.
As equity and commodity markets fell, investors held back on risk exposure to buy back the US dollar and yen as both low-yielders are considered safer currencies. The euro fell more than one per cent against the yen while higher yielding commodity-linked currencies like the Australian and New Zealand dollars slid from the unwinding of carry trades.
Analysts said that investors were turning cautious after recent economic data has not been as rosy as forecast, increasing worries that the sharp rally in risky assets over the past few months may have been overdone.
Investors were also wary of talk from emerging market countries about capital controls to limit some of the hot money flows into their economies, with new steps announced by Brazil and South Korea.
With the market being a little more sensitive going into year end, investors are likely repatriate funds. “Given falls we’ve seen in equity prices, I think the risk is that the moves we saw yesterday will probably continue,” said Robert Rennie, head of currency research in Sydney at Westpac Banking Corp. “Once you get to Thanksgiving, generally traders tend to get risk off the table.”
Bank of America may extend its search for a new chief executive into next year if its board is unable to pick a candidate in the next four days, according to a report on the Bloomberg News website. Bloomberg said that at least four external candidates including Citigroup director Michael O’ Neill had rebuffed approaches about the job.
The Wall Street Journal had reported on Friday that Lewis may delay his retirement beyond year-end if his replacement is not found by then.
Bloomberg said that the company is under pressure to pick somebody who would take a low enough pay package that it would win approval from the Treasury Department paymaster, citing the unnamed sources. It said other executives who did not want to take the job include William Winters, former investment banking co-head at JPMorgan Chase, US Bancorp Chief Executive Richard Davis and Eugene McQuade, who oversees Citigroup’s largest banking subsidiary.
With on-going volatility in currency markets and the traditionally volatile Christmas and New Year period, the use of Limit Orders and Forwards Contracts will help protect against undesirable currency movements.
Talk to your dealer to discuss the most appropriate hedging strategy over this period.
By Ivan Heng, Corporate FX Dealer
]]>The US dollar slipped against the EUR yesterday after its biggest gain in three weeks just the day before. After falling to US$1.485, it recovered till just short of US$1.50 levels. Fresh data did little to change views that the U.S. interest rates will remain at record lows well into 2010. Reports showing slightly higher-than-expected U.S. inflation and a slide in new home construction. Most dealers acknowledge that the dollar’s long term declining trend is intact. Depsite the possibility that the Federal Reserve may be withdrawing its massive stimulus injection soon, they are still confident that the Federal Reserve would refrain from raising its record low interest rates. St. Louis Fed President James Bullard commented on Wednesday that officials will probably adjust asset-purchase programs before they resort to hiking rates.
“That throws cold water on any lingering thoughts of rate hikes,” said Jacob Oubina, strategist at Forex.com in Bedminster, New Jersey.
This comment offsets the US dollar rally on Tuesday as covered in Wednesday’s commentary which spoke above the Fed Chairman Ben Bernanke being attentive to the US dollar’s value.
The bullion rose to a record high above $1,150 an ounce on Wednesday as stronger-than-expected U.S. consumer prices and a steadily weakening dollar stirred inflation fears and caused investors to seek refuge in the gold’s safe haven. “There is a lurking concern in the background that still exists,” said Bill O’Neill, partner at LOGIC Advisors, noting that investors were worried about the vulnerability of banks and the financial system.
Analysts commented that the precious metal remains firmly underpinned by technical support after several days of gains. With a buildup of momentum, it is likely that gold would continue to push for fresh highs in upcoming sessions.
By Ho Canjie, Corporate FX Dealer
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