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  • 2 years later...
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Technically the USD is at a potential turning point vs EUR and major currencies which could oversee a change in trend for gold. Rising US interest rates and a potential levelling off rather than downturn of the US economy, will help stabilize the USD. Price action is yet to confirm this though. However gold may, as it has in a few occasions in this bull run, hold its strength despite a rising USD. Thoughts?
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  • 4 years later...

Currency markets have been on edge these past weeks in the expectation the Bank of Japan would be forced to intervene to cap a rising yen. After fiddling for weeks as Tokyo burned, fannying about around the edges of monetary policy, the BoJ yesterday debased its currency for the first time since 2004. Analysts suggest the central bank ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“soldÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ anything from US$2-17bn worth of yen. I qualify the expression given it effectively amounts to printing money.

The yen subsequently fell 3% against the US dollar. While this represented the biggest single move in the yen since 1995, forex markets were well prepared. The US dollar index rose only 0.3% as everyone else adjusted.

The reason the BoJ was forced to act is because the yen had reached a 15-year high against the dollar. The Japanese prime minister yesterday survived a leadership challenge and commentators suggest the BoJ was holding out until parliamentary stability was assured. The reason the yen is at a 15-year high to the dollar, despite the Japanese economy still being in the deflationary doldrums which began in 1990, is because the US economy is also in the deflationary doldrums. Japan has been forced to print money because the US has been printing money.

Imagine playing Monopoly with the caveat that every time you looked like going out backwards, you could just take some more money from an unlimited bank. And every player had the same access. Monopoly games can be long, but when would this one end?

When everyone else was booming early this century and Japan wasn't, Japanese interest rates remained near zero while everyone else's rose. The Fed cash rate reached 5.25% before the GFC when the BoJ rate was 0.25%. This is what fuelled the yen carry trade, which saw Japanese investors borrowing yen to invest anywhere else in the world to find a return and American investors also taking advantage of Japan's low rates to fund any manner of risk-taking.

The resultant low yen was an advantage to Japanese exporters and it was little surprise, for example, that Toyota became the world's largest seller of vehicles in the period. But since the GFC, the US cash rate is now near zero and not looking like moving for at least another year. Risk trades were unwound in the GFC, meaning yen loans were bought back, but any risk trade today can be funded by greenbacks without (if you are American) having to take on currency risk. So the yen has been abandoned as the carry trade currency of choice, allowing it to rise rapidly. Japanese exporters have lost out.

The Fed's zero cash rate has been further supported by money printing, and expectations are that the Fed will again have to print more money before the end of the year as the US economy falters and unemployment remains too high. This would put more downside pressure on the dollar, which in turn would put more upside pressure on the yen. If the Fed acts, maybe the BoJ will have to act again too. Round and round we go.

Meanwhile, over in the economy that is suffering from inflation rather than deflation, largely because its currency is artificially pegged to the US dollar, Beijing is expected to introduce further monetary tightening at any moment. There is disagreement from commentators about exactly what form policy changes will take, but the recent round of positive Chinese data were strong enough to assume something will happen.

So the supposedly free financial markets are currently being overridden by intervention from higher powers. The BoJ has eased, the Fed may ease further, the PboC may tighten, and let's not forget that the ECB is still feeding the PIIGS with cash lest they are forced to restructure sovereign debt.

Now I ask you: Would you play a game of Blackjack with your own money if the Bank could change the rules mid hand? No? You'd stay right away from the table? Well that's exactly what's happening.

http://www.sharecafe.com.au/fnarena_news.a...AV&ai=17974

 

 

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I think we might be heading towards the next war - CURRENCY:

 

FACING hostile Congressional questioning, US Treasury secretary Timothy Geithner pressed China to significantly boost the value of the yuan. Mr Geithner said China's move toward a flexible exchange rate was "too slow," but was reluctant to formally label Beijing a currency manipulator.

 

http://www.theaustralian.com.au/business/n...x-1225925154845

 

AND another interesting read:

 

China has been forcing up the yen via record purchases of Japanese government bonds, leading Japan's government to intervene in currency markets this week. For the time being the US is not stepping into the brawl ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ but for how long?

 

http://www.businessspectator.com.au/bs.nsf...ent&src=sph

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BEIJING (Dow Jones)--China should reduce dollar assets in its foreign exchange reserves if the U.S. continues to pursue a loose monetary policy that threatens to weaken the dollar, Lou Jiwei, chairman of China's sovereign wealth fund the China Investment Corporation, wrote in an article included in a book published this month.

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Hi Bluice--above out of the Wall St Journal---unfortunately to get the rest you have to subscribe, but how stupid can you be to bait the hand that feeds you---

 

Basic Rule No 1: Never offend your bankers--especially when they own 30% of all your financial debts---what did a well known entrepeneur say--something along the lines of---you owe the bank $1m you have a problem---owe them $100million THEY have a problem!!

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  • 1 year later...

Monday 28th November 2011 marks a very significant shift in Chinese attitude to trading with and in foreign currencies.

 

In effect tomorrow they pair the Chinese Yuan with the Australian Dollar, meaning anybody can sell something in China and recieve the generated funds in AUD in the one transaction.

 

Last week if one conducted any sale in China one needed to find firstly out when the next period started of making foreign funds available, normally only so much of any one foreign currency was made available in any given month.

 

The route to the AUD was tortuous--Sell in Yuan,--convert to USD,-- convert to Hong Kong Dollars,-- convert to AUD's, whether this is yet another slow step towards a freely floating Yuan is unclear.

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  • 1 month later...

China and Japan have unveiled plans to promote direct exchange of their currencies in a bid to cut costs for companies and boost bilateral trade.

 

The deal will allow firms to convert the Chinese and Japanese currencies directly into each other.

 

Currently businesses in both countries need to buy US dollars before converting them into the desired currency, adding extra costs.

 

It is the latest step by China as it seeks a more global role for the yuan.

 

http://www.google.com.au/url?sa=t&rct=...2oIhjBhEtX0G-Dw

-----------------------------------------------------------------------------

 

BBC article showing Japan now joining China in allowing direct trading/settlements in their own currencies rather than the obligatory USD, yet another sign--IMO--that the days of the USD are becomming rarer as the third world flexes it's financial muscles.

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  • 4 months later...

Worth a read perhaps....

 

http://ftalphaville.ft.com/blog/2012/05/16...s-is-the-story/

 

There is a huge developing story in China's currency, the renminbi.

 

After years of structural under-valuation, things are changing.

 

China faces what we have described before as a "dollar shortage" problem, a situation it last faced on a major level in 2008.

 

This might seem counterintutive given China's large stock of US Treasuries, but we promise, this is a real and growing problem.

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the alphaville article finishes

... In which case, forget about Greece and the euro. China's capital outflow problem is the real ticking time-bomb for markets.

 

If China fails to plug this problem sharpish, the world's biggest put option ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâہ¡ÃƒÆ’‚ the China growth story ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâہ¡ÃƒÆ’‚ could quite genuinely come undone.

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Thanks for that Triage, its a fascinating read.

Not completely sure if I understood it completely, but have saved to further consume.

May even require further research.

I was intrigued by some of the comments that came underneath the article.

Mind you, I noticed that recently the yield on bonds has fallen again - the desire of investors to get into bonds and T bills might assist the Chinese a little.

 

Mick

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