Currencies

See how easy it is to execute forex trades through this latest video: http://www.youtube.com/watch?v=WhLChCWtw9M

Have you ever seen someone make a mistake and not only do they suffer for it but someone else does as a result also? Well, this is exactly what’s happening to Canada right now.

You see, most of last year, you could say that the Canadian dollar was falling because of falling commodity prices. Since Canada exports so many widely used commodities like oil and lumber, when prices fall, so do their profit margins. It costs them about the same amount to produce the product but what they can get for it in the market is determined by where those commodities are trading at the time.

USD/CAD Pushes Towards 1.30 Once Again!

http://www.mywealth.com/blog/sites/default/files/u3/usdcadtrade.JPG

This past year, one of the few financial instruments in the world was headed to the moon. Which one was that? The yen!

Yeah, the carry trade unwound which caused money to flow away from high yielding currencies and back into low yielding currencies like the yen.

Investors became risk adverse with their money. They poured it into things that had been beaten down for years because it seemed to be a safe place to run to. Thus the yen was a huge beneficiary during this ultimate “fear factor”.

However, recently I started talking to you about a possible turn coming in the yen and that the yen party was about to come to an end soon.

Things go from “Bad to Worse” in Japan

Most of the speculation in recent weeks concerning forex intervention has focused on Japan and Russia. The Central Bank of Mexico, meanwhile, has slipped quietly into forex markets to protect its battered Peso, which has fallen over 30% over the last six months. It's unclear whether Mexico's efforts, combined with support from the US, will be enough to stem further decline, considering that economic fundamentals continue to deteriorate. At the very least, the move serves as a symbolic warning to market bears, that the Central Bank is monitoring the situation, and is prepared to defend its currency accordingly.

This week, the Korean Won continued its downward slide, as a new round of volatility in global capital markets crimped a slight rally that had begun to build in the previous week. The currency has already fallen nearly 20% in 2008, as skittish investors have fled emerging markets en masse as the credit crisis has flared with renewed vigor. Last week, the government intimated with only a modicum of vagueness that it is prepared to use its $250 Billion in reserve to defend the Won, in order to forestall the kind of currency crisis that crippled its economy in 1997-1998. Bloomber News reports:

Even given the Dollar's universally strong performance over the last month, the slide in the value of the Korean Won has been an anomaly, falling over 10% over the same time period and reaching a 4-year low. Analysts attribute the decline to a widening of the country's current account imbalance brought about by a collapse in confidence in Korean securities, namely stocks and bonds. Foreign investors are rushing for the exits in masse, and some are speculating that bonds worth $7 Billion that mature this week will lead to a further outflow of capital. Earlier this year, the Central Bank of Korea spent over $30 Billion propping up the Won, but it has thus far refrained from intervening in the midst of the current slide.

In what some analysts have termed 'an act of desperation,' Vietnam has devalued its currency, the Dong, by .5%. Negative pressure had been building above the Dong for months, due to a burgeoning trade deficit, sagging stock market, and a stratospheric inflation rate, most recently clocked at 23%. Unfortunately for Vietnam's economic planners, the black market exchange rate remains nearly 5% below the official rate. In addition, futures prices reflect the expectation that the Dong will lose 30% of its value over the next twelve months. At this point, Vietnam is simply trying to forestall a full-scale economic crisis. This will probably involve further devaluations of the Dong. The Times Online reports-

At the recent Reuters Investment Outlook Summit, forex was a popular topic of discussion among the investment strategists in attendance. Specifically, many of the participants were bullish about emerging market currencies. This is somewhat ironic, since these currencies have marked one of the few bright spots for the Dollar, which has benefited from a recent trend towards risk aversion as a result of the credit crisis. In addition, the Fed is certainly finished with its current cycle of lowering rates, and may in fact hike rates as early as this year. However, the experts insist that this will be offset by corresponding rate hikes in emerging markets, which are beginning to come to terms with surging inflation.

While the Chinese Yuan quickly ascended the ranks of the world's most important currencies, the Indian Rupee has not yet made it.  But that might change in 2008, as the Royal Bank of India ("RBI") will be forced to decide between a more valuable rupee and price stability.  Until now, the RBI has successfully pursued the "impossible trinity of a fixed exchange rate, independent monetary policy, and open capital account" through judicious use forex intervention and the issuance of sterilization bonds.