Forex Rates May 6 2008 at 20:00 (GMT+8)

After the speech of Bernanke and some good news from EZ, USD is finishing the day weaker:

 

EURUSD	1.5538
USDJPY	104.56
GBPUSD	1.972
USDCAD	1.0121
USDCHF	1.0474
EURCHF	1.6274
EURGBP	0.7881
EURJPY	162.4263
USDTWD	30.46
AUDUSD	0.9448
NZDUSD	0.7875
USDSGD	1.3585
EURTWD	47.3288

 

Technorati Tags: Currencies, Forex, Rates, fvarga

Dollar Falls Versus Euro

The dollar fell against the euro and he yen after Federal Reserve Chairman Ben S. Bernanke said mortgage delinquencies will weigh on the economy, adding to speculation policy makers will keep interest rates on hold.

The U.S. currency extended its biggest drop in almost two weeks against the euro as some investors removed bets the Fed will lower interest rates next month.

EUR/USD is at posting time (20:00 - GMT+8 ) at 1.5537 (close to its highest level for today: 1.5546).

 

Technorati Tags: Forex, US, Euro, fvarga

Euro Falls Against Dollar on Bets ECB May Highlight Growth Risk

The euro fell against the dollar as investors bet the European Central Bank may highlight downside risks to the region’s economy this week when policy makers set interest rates.

The currency also declined against the Canadian dollar and the South African rand after ECB policy maker Miguel Angel Fernandez Ordonez said today that soaring food and oil prices are negative for growth.

The ECB will leave the benchmark rate at a six-year high of 4 percent on May 8, according to all 53 economists surveyed by Bloomberg News.

“Trichet is likely to heavily emphasize risks on growth rather than inflation this week,” said Geoffrey Yu, currency strategist at UBS AG in Zurich.

“We are looking for deterioration in euro region data in coming months, and for the ECB to start cutting interest rates by the end of September.”

The euro traded at $1.5462 at 8:47am in London from $1.5496 late yesterday. It was little changed against the Japanese currency at 162.29 yen and traded at 1.6302 franc from 1.6327 yesterday.

At posting time (17:00 - GMT+8), The Euro is at 1.5493, with a today range of more than 80 pips (82).

The euro also fell on speculation that the fallout from the U.S. subprime-mortgage crisis will erode the region’s economy.

UBS AG battered by $17.3 billion of first-quarter losses at its investment-banking unit, plans to cut about 5,500 jobs, or about 7 percent of the workforce.

 

Technorati Tags: Forex, US, Euro, Economy, Currencies, fvarga

RBA Kept Its Rate Unchanged

As widely expected, the Reserve Bank of Australia (RBA) left its interest rate unchanged at a 12-year high of 7.25% today.

“Weighing up the available domestic and international information, the board’s judgment is that the current stance of monetary policy remains appropriate for the time being,” RBA Governor Glenn Stevens said in statement following the decision.

“The board will continue to evaluate prospects for economic activity and inflation in the light of new information.”

Since May 2002, the RBA has increased interest rates a dozen times from its level at the time of 4.25 percent.

The most recent increase was in March, when the central bank responded to a rise in inflation projections based on the highest level of employment in 33 years.

A report from TD Securities and the Melbourne Institute indicated yesterday that the gauge of inflation climbed 0.5% in April, lifting the annual rate to 4.3%.

That was the highest in the five-year history of the series and well above the RBA’s 2-3% target band.

 

Technorati Tags: Central Bank, Australia, RBA, Interest Rates, fvarga

The Zimbabwe Introduced a Banknote of 250 million Zimbabwe dollars.

I believe all of you have heard about Zimbabwe, tightly controlled by the dictator Mugabe (at least for now because it seems that he could lose his position as president after the second round for the national election).

Thanks to this man, the country became a mess.

                               

The Zimbabwe introduced today a new banknote of 250 million Zimbabwe dollars!

“The governor of the central bank of Zimbabwe Gideon Gono unveiled two new banknotes of 100 million and 250 million dollars to be put into circulation from today”, announced on television.

Inflation continues to break records in Zimbabwe, where the latest official statistics showed a rate of 165,000% (yes, no mistake!) in February.

Harare has recently decided to float the exchange rate of its currency in an attempt to fight against speculation on the black market.

The official exchange rate for the Zimbabwean dollar is 30,000 against one USD since September 2007 but on the black market, the U.S. dollar is traded against some 100 million Zimbabwe dollars!

The rest of the economy is not doing better with an unemployment rate of around 70% and at least 80% of the population living below the poverty line.

It seems that no one in this area look worrying…

It is a perfect study case showing what stupid and criminal political decisions could bring to a country.

May I remind you that before the dictator took power, Zimbabwe was once one of the most developed countries in Africa?

Here, an article about the unbelievable stock market in Zimbabwe.

 

Technorati Tags: Africa, Mugabe, Zimbabwe, Inflation, Banknote, fvarga

Oil and Food Prices Could Cost 1.4 % of GDP in Emerging Asia

The food crisis and rising oil prices could cost 1.4 percentage point growth in gross domestic product (GDP) of  ten “developing” Asian countries in 2008, according to a study by the Asian Development Bank  published yesterday.

In this report, the ADB makes projections to try to estimate what might be the impact of the food crisis on the growth of nine Asian countries plus Hong Kong: China, India, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand.

Should the rise in food prices and those of oil in the first quarter would continue throughout 2008, “the regional GDP growth would decline by 1.41 percentage point” in 2008, according to the ADB.

This calculation is made on the basis of flexible interest rates, assuming that central banks will meet them in an attempt to curb inflation stemming from this situation.

In 2009, the decline would be even more pronounced (4.15 points), because these countries would also suffer from declining world growth, accentuated their homes by “the substantial drop in demand for their exports”, given that these countries “are heavily dependent on demand from industrialized countries,” according to ADB.

Thus, in 2009, China will lose 5.86 points growth, and the Philippines 3.48 points.

These prospects are published while the ADB has made the food crisis a key theme of its 41st annual meeting in Madrid.

More to read here.

 

Technorati Tags: ADB, Crisis, Asia, Food, Oil, GDP, fvarga

Oil Hits Record USD120:Trade it with USDCAD

Commodities are rallying, with oil leading the way. Just yesterday, prices surged to a record $120 per barrel.

Skyrocketing crude prices have been a recurring theme in recent months - as stocks fell to risk aversion and the US dollar tumbled, traders were desperate for a refuge destination to protect their assets.

Blossoming demand for commodity imports from emerging markets such as India and China offered a rare positive story in an otherwise shaken marketplace, attracting huge inflows of speculative capital and leading prices to balloon higher.

Crude has gained 22% since January alone. Energy costs have spurred inflation, depressed consumption, and distorted trade figures in nearly every G7 economy. Just as observers were starting to grapple with the idea of oil reaching $100 per barrel, it became apparent that $200 a barrel had nearly arrived.

Historically speaking, the Canadian dollar has been highly correlated with the price of oil, with the two tracking each other with over 80% precision.

This is not surprising – Canada boasts the world’s second largest oil reserves (after Saudi Arabia). Canada is also the number one supplier to the world’s largest oil importer, the United States.

As the price of oil goes up, Canadian firms benefit from greater export revenues, improving Canada’s trade balance and adding to positive growth in overall national income.

The relationship has been particularly notable in USDCAD. This makes sense because the global price of oil is denominated in US dollars. If the Canadian dollar is over 80% correlated with the price of crude, then one would reckon that an appreciation in oil would see an analogous depreciation in USDCAD over 80% of the time.

Currently, we can see that the correlation between USDCAD and the price of oil is very weak. Nearly 80% of Canadian exports are destined for the US market, making Canada highly sensitive to the slowdown in the States.

Most metrics of Canadian economic heath have started to deteriorate:

#Employment is accelerating lower as firms cut capacity in the face of slowing US demand.

#The trend in trade figures points to further downside.

#Overall GDP has plummeted to the lowest level in 2 years.

#The Bank of Canada issued two deep back-to-back rate cuts of 50 basis points each, stating more easing is on its way.

Put simply, the two North American economies will rise and fall together, locking USDCAD in place.

Think Oil Will Continue to Go Up? Sell USDCAD

With the summer driving season and the Beijing Olympic Games fast approaching, the top consumers of oil in the United States and China show no signs of slowing down. In fact, China has been rumored to be ramping up imports to build up stock piles of crude before prices reach even higher.

It seems only a matter of time before prices reach so high that swelling oil export revenues will make it cost effective for Canadian companies to expand capacity.

Firms will hire workers and invest in new buildings and machinery.

As more people go to work, disposable income levels will rise, spurring consumption and ultimately overall GDP as well.

The Canadian economy will thereby be able to decouple from the US crisis, building positive growth momentum in spite of slowdowns in non-oil export sectors.

As vibrant economic growth resumes, the specter of inflation will move the Bank of Canada to abort their campaign of rate cuts and start gearing up to move monetary policy in the opposite direction.

The newfound health of the Canadian economy and expectations of a widening yield gap will catalyze the USDCAD, causing the pair to break out of its current range for a sharp catch-up correction to the rise in oil.

Not only does this offer a second chance to get in on the rally already seen in oil futures, but the yield-bearing nature of currencies will allow FX traders to magnify their gains as they capture positive overnight interest for every day that they hold a short USDCAD position.

Think Oil is About to Peak? Buy USDCAD

A report published by the Organization of the Petroleum Exporting Countries (OPEC) noted that “the falling value of the US dollar has encouraged inflows of new money into the crude oil futures market…Crude oil prices have become detached from the dynamics of supply and demand fundamentals, since, in spite of the persistent price rises, the market remains well-supplied with crude.”

Traders have not discounted the apparent drag of the US slowdown on global growth, a trend that would cause oil demand to ease as consumers face deterioration in disposable income and pare back expenses.

This has not caused oil to decline, suggesting speculative bets against the US dollar rather than the fundamentals of crude production and consumption are behind the spectacular rise in prices.

The US has been proactive in dealing with the current crisis. The Federal Reserve has slashed borrowing costs by 60% in the past six months, creating incentives for spending and investment. The US government has also adopted fiscal stimulus package provide direct transfer payments as well as tax relief, both of which will increase disposable income and encourage consumption.

The weak dollar will help boost profits in the export sector, improving earnings and rekindling an interest in US equities. As the slowdown spreads globally, traders will look to US Treasuries as a stand-by safe-haven asset, prompting an inflow of capital into American debt markets.

All this will prompt investors to buy dollars, with the subsequent appreciation in and of itself depressing oil prices as the dollar regains purchasing power. This will send USDCAD higher all the while oil drops lower, correcting the current distortion.

The Gap between Oil and USDCAD Offers a Historic Trading Opportunity

The magnitude of the current disparity between oil prices and the USDCAD exchange rate compared to those in recent history suggests a trading opportunity yielding over 1000 pips profit.

While many will look to the spectacular rise in crude and wish they could have capitalized by entering the rally at the ground level, this opportunity offers an outlet to trade oil as it stands today, regardless of whether a trader is bullish or bearish going forward.

 

Technorati Tags: Economy, Oil, USD/CAD, fvarga

USD Relinquishes Gains

The greenback relinquished some of its earlier gains against the majors in New York afternoon trading, giving back the 1.55-level versus the euro and 1.97 against the sterling.

The dollar rallied initially on a stronger than expected April non-manufacturing ISM, which climbed back into expansion territory at 52 - its highest reading since December and beating calls for a deterioration to 49.1 from 49.6 in March.

The employment index improved to 50.8 in April, up considerably from March at 46.9, while the business activity index eased to 50.9, versus 52.2 a month earlier.

While last week’s better than expected US jobs report has tempered expectations for a June Fed rate cut, the economy still remains weak and has yet to bottom out.

Further, the policy statement given by the FOMC provided little indication that the current easing cycle was over.

Nonetheless, we look for the Fed to remain on hold at 2% for the remainder of the year.

Economic reports slated for release this week include Q1 productivity, Q1 labor cost, March pending home sales, and weekly jobless claims.

 

Technorati Tags: Economy, Forex, Currencies, USD, Fed, fvarga