Posts from — October 2006

It seems that the US dollar has been plagued with a string of poor economic data in recent weeks. Within the last week, the market saw the Philly Fed, Richmond Fed, GDP, and today, Chicago PMI and Consumer Confidence all print at worse than expected levels. This shouldn’t come as a surprise as the US Fed has already stated that the economy has been slowing in expansion this year, lead by the housing market. Dollar bulls are desperately searching for positive data and this week’s NFP numbers may be their last breath of hope. Traders holding on to dollars are looking for both a better than expected figure (consensus is 125k) AND a revision from last month’s release (51K). Speculators remember last month’s upward employment revision which caused a USD rally and with a figure as low as 51k, many are hoping that this Friday will be a repeat of last month.

As November begins soon the United States Dollar (USD) bulls will attempt what hasn’t done is five years. The Canadian Dollar (CAD) has dominated the exchange rate battle since 2001 against the United States Dollar. 1 USD used to buy over 1.60 CAD back then. Recently the exchange rate was less than 1.10 CAD. After rising and falling again, the last two months USD/CAD has been climbing. Not since the end of September 2001 has the it made monthly gains three consecutive times. Today USD/CAD is staying the course up about 70 pips so far and if it continues the end of November will break a pattern. Could this be the end of a five year Canadian Dollar reign or is it still too early to tell?

The Federal Open Market Committee (US Fed) left the US overnight lending rate unchanged yesterday at 5.25% for the 3rd consecutive time. The currency market had a knee jerk reaction as traders initially found the news to be pro Dollar but very quickly began to sell off as they continued to read through the Fed’s comments. Although the decision to leave rates unchanged was already fully priced into the market, everyone was eyeing in on the FOMC statement to see if they would continue to state their concern on core price inflation. The Fed added the line “Going forward the economy seems likely to expand at a moderate pace.” They also took out their concern of high commodity prices putting a strain the economy as oil prices have tumbled down over 25% from over $78 a barrel to around $60 today.

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Over the past twenty days the Australian Dollar has advanced approximately 600 pips against the euro. The market is expecting Reserve Bank of Australia Governor Glenn Stevens to raise rates above 6% compared to the the euro at 3.25%. Inflation has been higher than the 2-3% Mr. Stevens wants. Rises in commodity prices have also helped Australia as they export a great deal of metal and other raw materials.

Related Bloomberg Article

How about on bank notes? The Kazakh Central Bank did not spell the word “bank” correctly when printing their currency on the new notes.
* Reuters Article

The United States Bureau of Engraving and Printing has made some mistakes before too, and they are valuable if you find them. Takes a look at some of them here.

One of the highest yielding currencies may hike rates yet again.  Over the the past thirty days the New Zealand Dollar has gained a whopping 500 pips against the Japanese Yen with speculation the new interest rate spread will be 7.25% ( Current yeilds: Yen .25% - NZD 7.25% with expectations to rise to 7.5%)

Read more at Bloomberg

High yielding currencies show strength over the last few weeks as all make significant gains against their lower yielding counterparts.

South African Rand - 8% - See graphic below

Hungarian Forint - 7.5% - See graphic below

New Zealand Dollar - 7.25% - Chart

Australian Dollar- 6% - Chart

United States Dollar - 5.25% - Chart

Swiss Franc - 1.75% - Chart

Japanese Yen - 0.25% - Chart

The Hungarian Forint shows strength over the past couple weeks. The chart to the left shows it against the much lower yielding Swiss Franc. The y-axis shows the number of forints one franc buys.

Here you see a longer term chart of the South African Rand versus the Japanese Yen. The recent strength shows the one of the highest yielding currencies against the lowest.

Last week Federal Reserve vice-chairman Donald Kohn expressed question about rates falling anytime soon. Then Friday payrolls numbers came in better than what traders expeted. This coupled with falling oil prices, after ranging for months, the dollar advances strongly bringing it to levels we have not seen since late July against the euro.

But how much of the dollar advance is based on the fear of geopolitical news? Some think the events in North Korea scare investors as much as politicians, as both the levels of the dollar and the US equities markets show the desire to hold US based assets.

The above charts show the dollar against the euro over the past three weeks. The prices shown are the how many dollars in one euro.

As oil prices have been falling in the last week or two, so have the currencies of the heavy oil exporting countries including the Canadian Dollar and the Norwegian Krone.