Fed Rate Hike Still Distant
Analysts and Fed-watchers have been speculating for almost half a year about the possibility of a Federal Funds Rate (FFR) hike. With each prognostication of a rate hike comes a flurry of market activity, followed by an invariable ebb, as investors accept that the Fed will hold the FFR at 0% until at least its next meeting.
Swiss Franc Surges to Record High: Where was the SNB?
A Break-Up of the Euro?
Chinese Yuan Controversy Heats Up
Over the last couple weeks, rising expectations of a resumed appreciation of the Chinese Yuan (RMB) have brought heightened tension. Politicians, economists, and even newspaper columnists are finding themselves involved in increasingly bitter disputes over the issue. What’s more, the debate has regressed; whereas before it was a foregone conclusion that China would soon lift the peg and the only question was when, now people are once again asking themselves whether an RMB revaluation is even necessary/desirable.
Why is the Loonie Beating the Aussie?
It sounds like the beginning to a bad joke, right? But seriously, why is the Canadian Dollar (aka Loonie) beating the Australian Dollar (AUD) when the two currencies are placed head-to-head?
The currency markets tend to be very Dollar-Centric, in that they tend to view most currencies relative to the US Dollar (and to a lesser extent, the Euro), rather than to each other. When it comes to the Aussie and Loonie, then, traders at the moment seem content to see them as relatively strong, since both are appreciating against the Dollar. After all, the AUD/CAD pair accounts for only a small fraction of overall trading activity, which means that liquidity is lower and spreads are higher. Why bother?
EU Debt Crisis: Perception is Reality
I wonder if I wasn’t a little glib in my last post （Dollar Returns to Favor as World’s Reserve Currency）when I implied that the Euro would necessarily continue falling because of ongoing sovereign risk crises. In actuality, the situation is much more nuanced, and I want to qualify this idea below.
Dollar Returns to Favor as World’s Reserve Currency
Rumor has it that the Dollar is about to make a run. As the credit crisis slowly subsides, (currency) investors are once again looking at the long-term, and they like what they see when it comes to the Dollar.
For those that care to remember, 2008 was a great year for the Dollar, as the credit crisis precipitated an increase in risk aversion, and investors realized that despite its pitfalls, the Dollar was (and still is) the most stable and really the only viable global reserve currency. [This reversed a trend which had essentially been in place since the inception of the Euro in 1999]. In 2009, meanwhile, the Dollar resumed its multi-year decline, and many analysts were quick to label the rally of 2008 as an aberration.
Australia Hikes Rates; How about the Carry Trade?
Following up on my last post, I want to use this post to write about the long side of the carry trade- specifically the Australian Dollar. The Bank of International Settlements (BIS) observed in a recent report that, “The role of short-term interest rate differentials in both the deprecations and their reversal has grown over time.” When you consider that the benchmark interest rate in Australia is now 4% and that interest rates in every other industrialized country (including Japan) or close to 0%, it’s not hard to connect the dots.
Yen Carry Trade is Back!
I can’t remember how long it’s been since I was hyping the Yen carry trade (though a browsing of the ForexBlog archives indicates 2 years). Upon the outset of the credit crisis, forex markets went haywire, and one of the main “beneficiaries” was the Yen, which soared as carry trades were unwound. Now, however, a similar set of circumstances that made the Yen carry trade attractive from 2006-2008 have re-appeared, and it looks like the trade could be on the verge of making a big comeback.
Pound Falls, but may be Oversold
One of the pitfalls of forex blogging (or all financial reporting for that matter) is that it’s inherently after-the fact. In other words, any information about the past – while relevant – is inherently useless, since it has theoretically already been priced into the asset (or currency in this case). Before I begin my post on the Pound’s recent decline and the factors that wrought it, then, I wanted to offer the caveat that in analyzing past events, we must simultaneously look to the future.
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