Exchange Rate Moves and Currency News

Riots Raise Rates in Hungary

Riots broke out in Hungary after an audio clip surfaced of Prime Minister Ferenc Gyurcsany saying how the government lied about the state of the economy to help him be re-elected. Hungarians trying to be part of the European Union and adapt the Euro needs to have below a 3% of GDP deficit to qualify, where it is currently forecasted to be 10.1% this year. To do this there are increases and

Looking deeper than the numbers in South Africa

South Africa's current account deficit number came in at a deficit of 6.1% of GDP in the second quarter of 2006. Although it is contracting, as last quarter was 6.4%, the bigger picture is still bearish for the South African rand.

With a slowing growth environment, investors will generally put countries with current account deficits out-of-favor. In South Africa, data shows that foreign investment will most likely not be enough to cover the deficit by the end of the year. Additionality, with South Africa being the leading gold producer and having a currency tied to commodity prices, the downward pressure on commodities does not bode well for the rand.

The chart to the right shows the rand against the dollar over the last forty-five days.

Coup scares off Baht investors

A military coup invaded Bangkok with tanks, and soldiers seized radio and television stations. Prime Minister Thaksin Shinawatra declared a "severe state of emergency" via Channel 9 out of New York as the rebellion called for his resignation. The Thai Baht dropped a hard 2% against the Dollar in less than 2 hours.

The chart portrayed shows the Thai Baht plotted against the US Dollar over the past three months.

CTV Article

Hawks help Kiwi spread its wings

The Reserve Bank of New Zealand keeps rates unchanged at 7.25% but Allan Bollard say “we are less confident that no further policy tightening will be required in this cycle”. The chart shown is the AUD/NZD plunging over the last five days from 1.1867 to 1.1365. The New Zealand Dollar also rallied against the United States Dollar and the Japanese Yen.

EUR/NOK Unstoppable

The chart to the right shows the last year of price action for the EUR/NOK. With oil prices tumbling and Norway being a key exporter of oil, the change shows through in the strength of the Norwegian Krone. Another primary concern is the central bank rate for Norway. Prices actually declined in the month of August meaning that the year-on-year inflation level fell from .6% to .4%, below the consensus of .6-.7%. With inflation being a key ingredient for rate hike reasoning, this news does not bode well for increasing rates.

EUR/NOK = 8.382 at time of post

Single Currency in the Gulf?

The Gulf Cooperation Council (GCC), an alliance between nations around the Persian Gulf, talks of having a single currency for the region. Criteria for admission has yet to be decided on before plans can be ratified. The criteria being discussed are similiar to the criteria for the Euro, such as certain levels of inflation, government deficit, interest rates, and foreign currency reservces. Large decisions still have to be made before major changes happen such as where the central bank will be, but the goal is to have a monetary union by 2010.

More information:
Peninsula Article
Another Peninsula Article
Arab Online Article

Singapore Stalks Tokyo in Drive to Be Asia's Top Currency Hub

2006-08-28 17:17 (New York)

By Yumi Kuramitsu
Aug. 29 (Bloomberg) -- Singapore, a city-state with gross domestic product one 40th that of Japan, is poised to overtake Tokyo as Asia's biggest currency trading center, fueled by investor demand for emerging-market assets.
China and India are luring funds from Japan as investors seek bigger returns in the world's fastest-growing major economies. Restrictions on currency transactions in the two countries mean that most of the trades have to be done in offshore financial centers.
``The fastest growing sector of the foreign-exchange market is in emerging Asia, and trading for much of that is based here,'' said Callum Henderson, head of currency strategy in Singapore at Standard Chartered Bank Plc, which makes two-thirds of its profit in the region. ``Prospects for Asian currency volume growth still look extremely good.''
Daily volume in Singapore's spot market, transactions for delivery in two days, averaged $65.1 billion in April, just behind the $66.1 billion traded in Tokyo, surveys sponsored by the two central banks show. Singapore trading stood at $42.5 billion two years earlier, compared with $53 billion in Tokyo, according to a survey by the Bank for International Settlements.
The volume of trading in Chinese yuan increased more than fivefold from 2001 to 2004, and trading in the Indonesian rupiah jumped 283 percent, according to the Basel, Switzerland-based BIS. Global foreign exchange trading expanded 36 percent in constant exchange-rate terms in the same period.
Investor speculation that China will allow the yuan to strengthen faster is fueling bets on the currency. The Group of Seven industrialized nations in April told China to let the yuan appreciate to narrow lopsided trade flows.

Favorable Location

Singapore's location in Southeast Asia and its diverse population are helping it take advantage of the opportunity. English-speaking residents from China, India, Malaysia and Indonesia provide a workforce with the local knowledge and language skills to do business throughout the region.
``Japan is on the edge of Asia, so you can't cover the other markets that well,'' said Rajeev De Mello, the Singapore-based head of Asia fixed-income investment at Bank Pictet & Cie., which
has $28 billion of debt under management. ``Singapore has a talent pool. They have people from everywhere here.''
De Mello, 40, chose Singapore over Hong Kong and Tokyo when he moved to Asia from Geneva in December. The city-state offered benefits for his wife and three children, including the quality of housing and the choice of international schools, he said.
``We saw a `black and white' colonial house for the first time,'' he said, referring to the traditional homes built by Singapore's British rulers in the 19th century. ``It was like, `Wow! I have to live in one of these.'''

Luring Money Managers

Singapore is also offering incentives to attract hedge funds and other money managers as it seeks to expand the financial industry to spur economic growth. Fund managers with at least S$5 billion ($3.2 billion) of assets don't have to pay taxes on the fees they earn.
The number of hedge funds in the city grew by 51 percent to 109 last year, and assets tripled from a year earlier to more than $10 billion, according to the Monetary Authority of Singapore.
While Singapore may soon become Asia's biggest currency center, Tokyo isn't going to fade away.
The growth of Japan's economy after three recessions in the past 16 years will lead to an increase in currency trading in Tokyo, said Tetsuya Inoue, deputy director general of financial
markets at the Bank of Japan. The current expansion will become the longest since World War II by November, surpassing the so-called Izanagi boom of 1965 to 1970, a 57-month period of growth named after an ancient god.

Financial Regulations

``With the economic recovery, not only corporations but also investors, including retail investors, are increasingly active in foreign exchange,'' Inoue said. ``We have seen foreign banks
returning to Tokyo as a result.''
Singapore still may attract more investors because its financial regulations are less cumbersome than Japan's. The corporate tax rate in Japan is 40.7 percent, the highest in Asia
and more than double Singapore's 20 percent rate, according to an annual survey by accounting firm KPMG LLP.
``Fund managers have cited Singapore's central location in Asia, transparent tax and clear regulatory regimes as important factors,'' said Ong Chong Tee, deputy managing director in charge of monetary policy at the Monetary Authority of Singapore. ``All the top private banks already have a presence here.''
Toshio Aoki, chief executive officer of fund management company Stat Arb Ltd., started trading in Singapore two years ago. To buy gold and Nikkei stock exchange futures in Tokyo, a company is required to set up two separate entities, each with its own license, capital and employees, Aoki said. In Singapore, when a company's capital is below a certain amount, it just needs to register.
``The biggest reason I opened up in Singapore rather than Tokyo is the regulations,'' said Aoki, who declined to disclose how much his firm manages. ``It's just very difficult to meet the
requirements in Japan.''

--With reporting by Hiroko Komiya in Tokyo, Jake Lee in Hong Kong
and Wes Goodman in Singapore. Editors: Grose-Hodge (wsm)

To contact the reporter on this story:
Yumi Kuramitsu in Hong Kong at (852) 2977-6623 or
ykuramitsu@bloomberg.net;

To contact the editor responsible for this story:
Tony Barrett at (86) (10) 6505-9786 or
tbarrett4@bloomberg.net.