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Friday, September 26, 2008

Aussie Falls on RBA Rate Cut Signals | ForexGen

The Australian dollar declined to its lowest value against the U.S. dollar since July today after the central bank statement said that lower inflation may allow interest rate cuts in the future.

The Australian currency (which is also known by its nickname Aussie) fell for a sixth day in a row against its U.S. counterpart as the Reserve Bank of Australia released its statement today keeping the benchmark interest rate a 7.25 percent and saying that the rate may be decreased in the future to support the contracting economy:

As a result of increases in the cash rate last year and early this year, additional rises in market interest rates and tougher credit standards, there has been a substantial tightening in financial conditions since the middle of 2007. Some further tightening has occurred over the past couple of months. Conditions in international financial markets remain difficult, with heightened concerns over credit persisting.

Although many market participants see this statement as a clear sign that the RBA is going to reduce the interest rate, the timeframe for these changes is uncertain. Most probably the reduction won’t happen too soon and we will see another rate hold at the next meeting.

AUD/USD fell from 0.9293 to 0.9213 as of 7:47 GMT today — that’s the lowest level since April 14. Current downward trend continues since July 15 when this currency pair reached its 25-year high level. EUR/AUD rose from 1.6749 to 1.6842 today — the highest value since April 23.

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Euro Grows, ECB May Signal Inflation Risk | ForexGen

The euro rose today against the U.S. dollar and other major currencies on Forex after a quite deep decline that was observed yesterday, as the traders expect ECB President Jean-Claude Trichet to signal uprising inflation risks on the next meeting of the Governing Council.

According to the Bloomberg survey of the currency analysts European Central Bank will keep the key interest rate at 4.25 percent at its next meeting, which will be held tomorrow. But the majority of traders expects that the accelerating inflation will be mentioned as the primary concern, thus signaling future rate increases.

The European currency may remain in its long-term uptrend until the speculations about interest rate increases vanish. And as there is a high probability of one or two more rate hikes this year, the currency still has a great potential.

EUR/USD advanced from 1.5450 to 1.5496 as of 7:56 GMT today after losing almost 0.8 percent yesterday. EUR/GBP opened at 0.7910 today and is now trading near 0.7921. EUR/JPY rose from 167.32 to 167.90.

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Yuan Falls as China to Control Money Inflow | ForexGen

The Chinese yuan fell against the U.S. dollar for the third day this week as the government tightened control over the illegal capital inflow into the country’s financial system.

The demand for the local currency may decline as the new rules give market regulators a greater authority in the payments investigations. People’s Bank of China kept yuan almost unchanged to the U.S. dollar since the start of the third quarter after it gained 2.3 percent in the second.

Currency strategists expect that the new rules will cool down the inflow of the speculators’ money that bet on the fast appreciation of the yuan. With less demand for the dollar-to-yuan conversion operations, the pace of the yuan’s strengthening may slow down significantly.

Analysts also note that the previous regulations were targeted on the money outflow, stimulatating growth and inflation. The new regulation rule indicate that the situation in China has changed from the lack of foreign exchange reserves to the excessive growth that needs to be kept down a little.

USD/CNY rose from 6.8530 to 6.8659 after the central bank has set the reference rate for yuan at 6.8555. Chinese currency is allowed to fluctuate at no more than 0.5 percent in either direction from that rate in a single trading day.

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Euro Drops to 5-Month Low on Rate Outlook | ForexGen News

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The euro fell to its five-month lowest level against the U.S. dollar as the investors traded on the high probability that the ECB won’t be raising interest rate as the economy is slowing.

The euro also declined against the Japanese yen, falling to its 3-week low against this currency. Yesterday European Central Bank President Jean-Claude Trichet said that the Eurozone economy will be particularly weak in the third quarter of 2008, snapping all hopes for the interest rates increases in the near future.

The Australian and New Zealand dollars accompanied the euro in its fall. They were among the leaders of the worst performers of the 16 most-traded world currencies as the traders expect rate cuts in those countries.

Market analysts believe that Trichet opened a way for quite a long declining trend for euro. Eurozone currency may go down significantly below the current level as the huge confidence in the ECB’s extreme hawkishness was removed by the yesterday’s commentary.

EUR/USD lost almost than 1.2 percent already today, falling down from 1.5324 to 1.5163 as of 8:34 GMT; the daily minimum lies at 1.5140 — the lowest level since February 28. EUR/JPY fell from 167.57 to 166.69 today — its new minimum since July 17. EUR/GBP declined slightly today — it went down from 0.7886 to 0.7866 with a daily low at 0.7849.

Recent Dollar Gain May Mean Big Drop Soon | ForexGen

The recent fast growth of the U.S. dollar against the euro doesn’t mean that it’s out of the long-term bearish trend. Slowing economy and the risk of rate cuts even with a rising inflation are still weighing down on dollar.

Since the beginning of August the dollar surged 4 percent against the Eurozone currency. This was enough for many large investing banks to advice their customers to stop betting on more gains. Analytics believe that the ongoing housing and financial slumps in U.S. won’t allow Fed to raise the interest rate this year.

According to Barclays Plc (a London-based bank) and Merrill Lynch & Co. (a New-York based bank), the 5.1 percent growth of dollar against the basket of the 6 most-traded currencies that was seen in the past 3 weeks can’t be sustained by the American economy.

There is a little chance for the U.S. to return to the previous high rates of the GDP growth and an inflation rate below 3.3 percent. Since 2000 dollar lost more than 44 percent against the euro and GDP growth slowed to 1.9 percent, while inflation accelerated to 5 percent. Current interest rate situation offers no attractive opportunity for the Forex traders to bet on the U.S. dollar in a long term.

EUR/USD rose from 1.4944 to 1.5065 as of 8:50 GMT today — after it opened with a rather large gap copared to Friday’s 1.5005 close rate; currently EUR/USD demonstrates the strongest gain since June 6. USD/JPY declined from 110.37 to 109.74.

Aussie and Kiwi Continue Bearish Trend | ForexGen NewsLetter

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Both Australian and New Zealand currencies continued to fall against the U.S. dollar today as the traders’ confidence that the central banks of those countries will cut interest rates soon rose and the dollar continued its growth against euro, pound and yen.

The Australian dollar (also known by its nickname Aussie) has already lost more than 11.3 percent since it reached its 25-year maximum against the U.S. dollar on July 15. The Reserve Bank of Australia left interest rates unchanged on its last meeting on August 5, saying that the current decrease in economic output will allow lower lending rates.

Apart from the high interest rate, Aussie was supported by the rising oil and commodity prices. With the current decline in the crude oil prices this support is disappearing, allowing the faster drop for the Australian currency.

The New Zealand dollar that is also know as kiwi declined to the lowest rate since September 11 today as the further reports on housing slump ensured traders that the Reserve Bank of New Zealand will have to continue lowering the interest rates this year.

AUD/USD fell for the eleventh day today — from 0.8814 to 0.8770 as of 7:37 GMT with the daily minimum at 0.8730. NZD/USD declined for the sixth day today — from 0.6972 to 0.6963 with a daily low at 0.6933. AUD/NZD also dropped today reflecting the weakness of Aussie compared to kiwi in the current situation; the currency pair went down from 1.2630 to 1.2588.

Poland Needs to Adopt Euro More Urgently | ForexGen Latest News

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According to Regional Development Minister of Poland Elzbieta Bienkowska, euro should be adopted as soon as possible because zloty’s appreciation partially eliminates the value of the financial aid made by European Union and which is denominated in euro.

There is also a concern about the damage to the economic growth that may be caused by the rapidly strengthening national currency. Bienkowska urged country’s financial authorities to accelerate the euro adoption process:

Looking at the zloty exchange rate since Poland joined the EU, it seems obvious that euro adoption would be the most rational solution. It would enable us to avoid the risk created by the zloty’s strength, which may continue in the next EU budgetary period.

The Polish zloty rose 17 percent against the European currency since the country’s entry into European Union in 2004, affecting the real value of 12.8 billion euro of the financial aid received during the first two years.

Current government prefers to link zloty’s exchange rate to euro for the year or two prior to the actual adoption. Adopting euro requires also low inflation, budget deficit and public dept.