Korean Won Headed Up, Despite Unwinding of Carry Trade
The Korean Won is up 32% since March, and 8.2% on the year. At the same time, it is 20% below is 2007 year-end level, as well as 13% weaker than the 2006 average of 955 and 15.5% weaker than the 2007 average.
Pause in Rate Hikes Threatens AUD
In October, the Reserve Bank of Australia (RBA) became the first industrialized Central Bank to raise interest rates. It followed this up with two additional hikes in November and December, bringing its benchmark rate to the current level of 3.75%, by far the highest among major currencies.
“Logic” Returns to the Forex Markets, Benefiting the Dollar
Many analysts are pointing to Friday, December 4, as the day that logic returned to the forex markets. On that day, the scheduled release of US non-farm payrolls indicated a drop in the unemployment rate and shocked investors. This was noteworthy in and of itself (because it suggests that the recession is already fading), but also because of the way it was digested by investors; for the first time in perhaps over a year, positive news was accompanied by a rise in the Dollar.
Indian Rupee’s Rise is Sustainable
While the Indian Rupee has risen more than 10%, since bottoming in March, it has increased only 4.3% in value in the year-to-date. Still, given how turbulent the first few months of 2009 were (a continuation of 2008, really), this modest appreciation was actually the third highest, among Asian currencies, behind only the Indonesian Rupiah and Korean Won.
Fears of Sovereign Debt Default Enter the Forex Fray
As if forex traders didn’t have enough to worry about these days, now there is a new concern- that of sovereign debt default. The last couple months have witnessed a spate of minor episodes, all of which paint a picture of frightening cohesiveness about the state of sovereign finances, and the ability of countries to continue to finance and service their debt. As the economic recession moves into recovery (or at least, permanently distances itself from the prospect of depression), the markets will likely turn their gaze towards the long-term, with this issue looming large.
Dollar Could Go Either Way, Depending on the Carry Trade
As I outlined in my last two posts, the Dollar could witness a rapid appreciation if/when the Fed finally raises interest rates. Given Chairman Bernanke’s frequent erring on the side of inflation, however, it could be months (at the earliest) before the Fed actually pulls the trigger. With forex markets guided by interest rate differentials, and traders’ uncertainty about the timing of interest rate hikes, its fair to say that the Dollar is at a crossroads.
Bernanke’s Background and Near-Term US Monetary Policy
The big story of the last month in forex markets has been the possibility that the Fed could soon hike interest rates, which would upend some of most stable (and gainful) strategies currently being employed by traders. As a result, the markets will certainly scrutinize the statement that accompanies today’s conclusion of the monthly rate-setting meeting, for any clues about the likelihood of such rate hikes. As I suggested in the title of this post, I think the best place to start in trying to forecast the near-term direction of US monetary policy is the man with the finger on the button – Ben Bernanke.
Pound’s Demise Will not be Hard to Time
I’d like to follow up on my last post (Timing is Everything in Forex, Especially in this Environment) by looking at how to time one specific currency: the Pound. As I noted tongue-in-cheek with the title of this post, timing the Pound will not be difficult, since it is likely headed downward in both the short term and long term.
Timing is Everything in Forex, Especially in this Environment
I just finished reading a Wall Street Journal piece (Central Banks Rattle Markets), which laid out, in fairly broad terms, how the activities of Central Banks have become the main fodder for forex traders, and how this trend will continue as the global economy looks to move beyond the credit crisis. The piece got me thinking about the importance of timing, when it comes to forex.
Playing Chicken with the BOC
The Canadian Dollar has been one of the world’s top performers this year, especially relative to the Dollar. The Bank of Canada is less than thrilled about this distinction, which is why it takes advantage of nearly every opportunity to remind the markets that it will do everything in its power to prevent the Loonie from rising further. The markets are beginning to wonder, however, whether the BOC is actually prepared to put its money where its mouth is, if push comes to shove.
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