Canada's Dollar Exceeds Par on the Outlook for Rate Advantage

The Canadian dollar rose above par against the U.S. currency for the first time in three weeks on speculation Canada's interest-rate advantage over the U.S. may widen.

Canada's dollar strengthened versus 14 of the 16 most- traded currencies before the Federal Reserve decision tomorrow. Policy makers may cut the U.S. benchmark lending rate by 50 basis points to 3 percent, according to futures prices quoted on the Chicago Board of Trade. That would widen the rate gap to 1 percentage point, with Canada's borrowing costs at 4 percent.

``It's a part of a broad-based U.S. dollar weakness before the rate meeting,'' said Matthew Strauss, a senior currency strategist in Toronto at RBC Capital Markets. ``Currencies linked to commodity exports are generally gaining in this environment.''

The currency, known as the loonie after the image of the bird on its one-dollar coin, rose 0.4 percent to 99.95 Canadian cents per U.S. dollar at 4 p.m. in Toronto, from C$1.0035 yesterday. It touched 99.44 Canadian cents, the strongest since Jan. 4. One Canadian dollar buys $1.0007.

The U.S. dollar declined against 10 of the 16 most-traded currencies. The Canadian dollar gained the most, 0.8 percent, against the Swiss franc today.

The Canadian dollar gained 1.9 percent last week, wiping out losses it suffered earlier this month.

Interest-rate futures traded on the Chicago Board of Trade show 78 percent odds the Fed will lower borrowing costs a half- percentage point tomorrow and a 22 percent chance of a quarter- percentage point cut. The odds were 80 percent and 20 percent, respectively, on Jan. 22.

read more:Canada's Dollar Exceeds Par on the Outlook for Rate Advantage

Yen Rises as Credit-Market Losses Sap Demand for Higher Yields

The yen gained against 15 of the 16 most-active currencies on speculation credit-market losses will prompt investors to sell higher-yielding assets.

The currency rose the most versus Australia's dollar after U.S. regulators started probing the finance industry over the collapse of the subprime mortgage market. The dollar snapped two days of gains versus the yen on speculation the Federal Reserve will cut interest rates by 50 basis points today, reducing the allure of U.S. debt.

``The subprime problems don't seem to be fully resolved yet,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``Investors are still very averse to taking on risk. It's a factor for buying the yen.''

The yen climbed to 106.73 against the dollar at 1:48 p.m. in Tokyo from 107.11 late in New York yesterday. It also rose to 157.62 per euro from 158.27. It will advance to 106.70 versus the dollar and 157.50 against the euro today, Ishikawa forecast.

The currency rose 0.5 percent to 94.79 per Australian dollar from 95.25. Declines in higher-yielding currencies accelerated after the MSCI Asia-Pacific Index fell 1 percent, reversing an earlier rally.

The yen is set for a monthly gain versus all 16 of the most-active currencies, rising 9.5 percent this month versus the South African rand to 14.8738, and 5.6 percent against the South Korean won to 8.84041.

read more:Yen Rises as Credit-Market Losses Sap Demand for Higher Yields

Aussie, Kiwi, Real Rally as Yield Lures Putnam, Daiwa

Jan. 28 (Bloomberg) -- The best bets in the currency market may be Australia, New Zealand and Brazil, where economists predict central bankers will keep interest rates unchanged, or even raise them, while growth continues unabated on rising exports to China.

Kokusai Asset Management Co., Pacific Investment Management Co. and Putnam Investments LLC are investing in southern hemisphere countries to benefit from the highest bond yields relative to U.S. debt this decade. Australia's two-year government bonds yield 4.4 percentage points more than Treasuries of similar maturity. In New Zealand, the gap is 5.1 percentage points, and in Brazil, it's 9.1 percentage points.

Australia, New Zealand and Brazil are best positioned to weather a slowdown in the U.S. because a rising percentage of their goods are headed to China, where growth may average 10.3 percent this year, said investors such as Masataka Horii at Kokusai in Tokyo. China has overtaken the U.S. as Australia's largest export market after Japan, and the nation increased imports from Brazil fivefold over the last six years. Brazil kept its target rate at 11.25 percent last week and New Zealand left its at 8.25 percent. The Reserve Bank of Australia meets next week.

``We're very bullish on Australia,'' said Horii, who helps manage the $50.2 billion Kokusai Global Sovereign Open fund, the world's second-biggest managed bond fund. ``The countries that are expected to hike rates are limited. They have good relations with Asian economies, especially China.''

read more:Aussie, Kiwi, Real Rally as Yield Lures Putnam, Daiwa

Yen Rises as Stock Slump Spurs Sales of Higher-Yielding Assets

The yen rose against all 16 of the most-active currencies as Asian stocks slumped, prompting investors to sell higher-yielding assets outside of Japan.

The currency gained the most against the South African rand as China's benchmark stock index declined almost 7 percent, adding to concern global economic growth will slow. The pound dropped against the dollar after an industry report showed U.K. house prices fell for a fourth month.

``Asian stocks, especially in China, are really performing badly,'' said Kenichi Yumoto, senior dealer in Tokyo at Societe Generale SA, France's second-largest bank by market value. ``This is causing risk aversion among investors, prompting yen- buying.''

The yen gained to 106.61 per dollar at 8:07 a.m. in London from 106.72 in New York Jan. 25. The currency climbed to 156.38 per euro from 156.68. Against the euro, the dollar was at $1.4670 from $1.4681. Japan's currency may rise to 105.80 per dollar and 155 a euro today, Yumoto said.

Japan's currency jumped 0.7 percent to 14.8266 versus the rand and rose 0.4 percent to 210.76 per pound from 211.66. It climbed 0.2 percent to 105.63 against the Canadian dollar. The MSCI Asia-Pacific Index of regional shares fell 3.2 percent, as China's CSI 300 Index slumped 6.8 percent.

Britain's currency weakened against all 16 of the most- active counterparts tracked by Bloomberg and fell to $1.9767, from $1.9831. The average cost of a home in England and Wales fell by 0.3 percent in January, according to Hometrack Ltd., a London-based research group.

read more:Yen Rises as Stock Slump Spurs Sales of Higher-Yielding Assets

Alarm bells send dollar falling

The dollar plummeted on Tuesday after an emergency cut in the US federal funds rate set alarm bells ringing over the health of the country’s economy.

The dollar – which traded strongly on Monday as US investors repatriated funds in the face of the sell-off in global equities – sold off aggressively.

By midday in New York, the dollar was down 1.3 per cent to $1.4630 against the euro, had lost 1 per cent to SFr1.0980 against the Swiss franc and dropped 0.9 per cent to $1.9610 against the pound.

Analysts said the dollar could fall more, given that the Fed’s 75bp cut risked being seen as a panic move.

They said this implied that the central bank could be in possession of specific information which had increased its concerns over the health of the US financial sector.

read more:Alarm bells send dollar falling

Weak data force bank to take bold approach

Tuesday’s aggressive move by the Federal Reserve represents an urgent effort to catch up with – and it is hoped get ahead of – the rapid deterioration in the US economic outlook.

It also represents an implicit admission by the US central bank that it had fallen behind the curve on monetary policy.

Policymakers were increasingly concerned that while they had cut interest rates by 100 basis points since the credit crisis began, rates were still far too high, given the state of the economy. In particular, they had cut rates by only 25 basis points since the end of October – a shift officials recognised was not enough to offset the deterioration in financial conditions, never mind provide any insurance against the worst-case risks to growth.

In their defence, the ....

read more:Weak data force bank to take bold approach

Bank of Japan votes unanimously to keep overnight call rate target unchanged

TOKYO (Thomson Financial) - The Bank of Japan kept its overnight call rate target unchanged at 0.5 percent for the 13th straight meeting Tuesday, as widely expected.

This gives the Japanese central bank time to assess whether the financial market turmoil triggered by the credit crisis in the US will settle down soon, and whether weakness in the US housing market poses further material downside risk to its economy, given that the US is one of Japan's most important trading partners.

The Japanese central bank also needs to ascertain whether the Japanese economy can maintain its recovery momentum despite emerging uncertainty about domestic private demand and the appreciation of the yen.

The Bank of Japan said the nine members of its policy board voted unanimously to leave the rate unchanged.

read more:Bank of Japan votes unanimously to keep overnight call rate target unchanged

Euro/Usd: a double top forming?

The economic situation in the United States should be critical, when Chairman Bernanke calls for the fiscal stimulus package to become immediately effective. A concentric work might be the best solutions to take the economy back on track with stocks tumbling to new lows, housing in a steep decline and consumers prudent over the future. The Federal Reserve will do its job by cutting rates aggressively in the first part of 2008. At the end of January, a rate cut by 50/25 basis points seems to be a possible move, but time may be required to get things going again.

read more:Euro/Usd: a double top forming?

USD Shrugs off Dismal Retail Sales

The dollar regained its footing by the New York afternoon following earlier selling against the euro, sterling and yen. A sluggish retail sales report for December was the catalyst for the greenback’s drop to multi-year lows versus the yen at 106.62.

read more USD Shrugs off Dismal Retail Sales by Korman Tam

Greenback Woes Linger

The greenback struggled against the yen and euro at the start of the week amid a dearth of fresh US economic news. The currency also tumbled to a new all-time low against the Swiss franc. Speculation that the Fed may step in to cut interest rates before the next policy meeting at the end of the month dragged the dollar lower. The market is now fully pricing in a 50-basis point rate cut after last week’s dovish tone from Chairman Bernanke, in which he said that the FOMC would adopt “substantive additional action” to prop the economy.

US economic reports and Fed Chairman Bernanke’s Congressional testimony will drive the markets this week. Retail sales will be released on Tuesday, and are expected to report disappointing results from December – with a flat monthly reading in both the headline and ex-autos, down from 1.2% and 1.8%, respectively. Also due out tomorrow are the December PPI figures, both headline and core seen falling to 0.2% m/m. Traders will closely look at the rest of this week’s data – consisting of industrial production, CPI, housing starts, building permits, Fed Beige Book, Philadelphia Fed index, and the University of Michigan consumer sentiment, for further indication of whether a US economic recession is forthcoming.

read more:Greenback Woes Linger

FX Mixed

The greenback was mixed against the majors in Tuesday trading, rallying against the yen while relinquishing yesterday’s gains versus the sterling. Fears on the stability of financial firms will continue to weigh on the dollar with earlier rumors of Countrywide, the US mortgage lender, seeking bankruptcy protection adding to market jitters.

Economic data released earlier in the session revealed further deterioration in the housing market. US pending home sales fell by 2.6% to 87.6, down from a revised 89.9 reading in October. The key highlight this week will be Thursday’s speech by Fed Chairman Bernanke, in which his comments will be closely scrutinized for clues as to whether another 25-basis point rate cut at the end of the month is forthcoming.

read more:FX Mixed

Volatility Abound in FX

The major currencies were subjected to choppy and volatile trading in the Wednesday session with the dollar initially plunging to an all-time low against the Swiss franc and a fresh two and a half year low versus the yen. The greenback, however, managed to lick its wounds by the New York afternoon – rebounding from beneath the 106-level versus the yen to 107.90 and recovering above the 1.10-mark against the franc.

The December consumer price index revealed buoyant inflation conditions, at 0.3% m/m and 4.1% y/y. The excluding food and energy figure was unchanged at 2.4% y/y. Industrial output was flat, versus a 0.3% increase a month earlier. The NAHB housing market index for January was unchanged at 19.
read more: Volatility Abound in FX

Asian Currencies: Won, Ringgit and Rupiah Fall on U.S. Slowdown

Jan. 18 (Bloomberg) -- Asian currencies headed for a weekly decline, with South Korea's won set for its worst week in two months, as overseas investors sold local shares on expectations a U.S. slowdown will cut demand for the region's exports.

The won and South Korea's benchmark stock index reached their lowest since August as central bank Governor Lee Seong Tae said the nation's economy faces intensifying risks from the possibility of a U.S. recession and soaring fuel costs.

``The won is vulnerable to declines in global equities,'' said Yuji Kameoka, a senior economist and currency analyst at Daiwa Institute of Research in Tokyo. ``Concerns cooling U.S. growth will drag global stock markets and the global economy lower encourages investors to sell emerging-market assets.''

The won has fallen 1.1 percent this week to 948.25 against the dollar as of 12:50 p.m. local time, according to Seoul Money Brokerage Services Ltd. It may trade between 945 and 960 in a month, Kameoka said.

The won is the second-worst performer out of the 10 most- active Asian currencies outside of Japan this week. Thailand's baht is the worst, losing 3.5 percent this week offshore.

Malaysia's ringgit headed for its first weekly decline in a month also on concern about a U.S. recession.

The local currency weakened for a third day as global stocks slumped after U.S. reports yesterday showed slowing manufacturing and housing activity and Merrill Lynch & Co. announced larger-than-expected losses. The U.S. is the biggest market for Malaysian exports.

`Safe-Haven Assets'

read more

Yuan Heads for a Sixth Weekly Gain as China Curbs Inflation

Jan. 18 (Bloomberg) -- The yuan headed for a sixth weekly gain, the longest stretch in seven months, on speculation China is allowing the currency to appreciate to cool the economic expansion and bring inflation down from an 11-year high.

The currency's advance so far this year is the best since China abandoned a link to the dollar in July 2005. The nation has increased interest rates and told banks to set aside more funds as reserves to slow growth that is the fastest of any major economy by reducing the cash available for investment.

``The yuan will remain one of their key tools to fight inflation,'' said Sean Callow, a foreign-exchange strategist at Westpac Banking Corp. in Singapore. ``There will be bursts of strength then periods of slower gains.''

The yuan rose 0.18 percent to 7.2488 against the dollar this week as of 12:22 p.m. in Shanghai, the longest run of weekly gains since June 1. Westpac forecasts the currency will strengthen to 6.98 by year-end.

``While the yuan is treading water short term, I think we will see reacceleration over the next one-two months, unless there is a sharp, unexpected slowdown in China's economy, which virtually no one expects,'' Callow said.

`Some Progress'

read more

Everyone Loves Yen in Subprime World of Slowing U.S.

Jan. 15 (Bloomberg) -- The poorer the prospects for the U.S. economy, the more attractive Japan's yen is to Alan Eisner.

The hedge fund manager at Millennium Global Investments Ltd. in London says slower growth in the U.S., Japan's biggest export market, will cause Japanese investors to pare their overseas purchases. At the same time, the most volatile exchange rates this decade are forcing traders to buy yen to repay loans denominated in the currency.

``Now is a good time to buy,'' said Eisner, a senior managing director at Millennium, which has $13.3 billion in assets. ``When the world is doing well, then Japanese investors are very happy to invest abroad. When the world is not looking so great, the dynamic works the opposite way.''

Investors and traders are buying Japan's currency even as its broadest rally in eight years threatens to derail the nation's economy. The country relies on exports for most of its growth and has a 50 percent chance of recession, according to Goldman Sachs Group Inc. Automakers Mazda Motor Corp. and Nissan Motor Co. have tumbled more than 10 percent this month on concern that the rising currency will erode earnings.

``We're looking to buy yen,'' said Paresh Upadhyaya, a senior vice president at Putnam Investments LLC in Boston who helps manage $29 billion in currencies. ``The pillar of yen weakness, a buoyant global environment coupled with low volatility, has flipped.''

Best Since 1999 ............

read more

Dollar Trades Near Record Low Versus Euro on Fed Rate-Cut Bets

Jan. 15 (Bloomberg) -- The dollar traded close to a record low versus the euro before a report that economists expect will show U.S. retail sales growth stalled in December.

The dollar has declined versus 14 of the 16 most-active currencies this year as traders start to price in odds the Federal Reserve will cut benchmark borrowing costs by as much as 0.75 percentage-point this month. The Mortgage Bankers Association yesterday forecast U.S. existing home sales will fall 13 percent this year before recovering in 2009.

``Heightened expectations of the Fed cutting interest rates has been the theme that is the nemesis of the dollar,'' said John Kyriakopoulos, a Sydney-based currency strategist at National Australia Bank Ltd., the nation's largest lender. ``There are some downside risks around the retail sales number.''

The dollar traded at $1.4877 against the euro at 11:42 a.m. in Tokyo compared with $1.4869 yesterday in New York. It reached an all-time low of $1.4967 on Nov. 23 and may weaken to about $1.50 per euro this week, Kyriakopoulos said.

The U.S. currency was at 107.98 yen from 108.16 yen. The euro traded at 160.65 yen from 160.84 yen. The pound bought $1.9560 from $1.9559.

U.S. Rates

read more

Yuan Heads for Fifth Weekly Gain as China Seeks to Cool Economy

Jan. 11 (Bloomberg) -- The yuan headed for a fifth weekly gain, the longest winning streak since September, on speculation China is seeking faster gains to cool the economy.

The currency also rose as the state-run Xinhua News Agency reported today that the nation's trade surplus surged to a record for 2007, adding to pressure for yuan gains. The World Bank this week forecast China will grow more than 10 percent this year and next, which may fuel inflation already at the fastest in more than a decade.

``The pace of appreciation has been increasing and we're seeing the market raise its expectations over the pace of gains,'' said Thio Chin Loo, a senior currency analyst at BNP Paribas in Singapore. ``They're using a tighter policy to cool things down, and stepping on the brakes some more.''

The yuan gained 0.1 percent to 7.2644 versus the dollar as of 12:46 p.m. in Shanghai, compared with 7.2719 yesterday, according to ....
read more:Yuan Heads for Fifth Weekly Gain as China Seeks to Cool Economy

Bank of England Keeps Benchmark Interest Rate at 5.5%

Jan. 10 (Bloomberg) -- The Bank of England kept its benchmark interest rate unchanged today as policy makers assessed the effects of last month's reduction on the economy.

The nine-member Monetary Policy Committee, led by Governor Mervyn King, left the bank rate at 5.5 percent, as predicted by 40 of 50 economists in a Bloomberg News survey. The rest forecast a quarter-point cut.

Economists predict the Bank of England will wait until next month before lowering rates again as banks rein in lending, damping consumer spending and deepening a slowdown in the housing market. Officials are weighing those risks against inflation pressures after oil prices rose to a record.

``They don't want to take risks on inflation,'' said Stewart Robertson, an economist at Morley Fund Management in London. ``But they missed a trick here. They could have sent a supportive message in the face of a lot of gloomy news. We'll get a cut next month.''

The pound, which initially rose after the decision, fell to a record low 75.45 pence per euro today. Investors are speculating that the deteriorating economy will prompt the Bank of England to lower borrowing costs as soon as traded at 4.346 as of 5:12 p.m. in London. Minutes of the meeting, including how each member voted, will be published on Jan. 23.

U.S. Recession

U.K. Prime Minister Gordon Brown, lagging behind opposition leader David Cameron in opinion polls, is trying to reassure voters that the economy can weather a global slowdown. Brown, who will decide in the next few weeks whether to reappoint King as governor, said yesterday that ``low interest rates'' and ``low inflation'' will keep growth on track.

Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co. say the U.S. may already be in recession and recent economic reports suggest the U.K. economy is cooling.

House prices dropped in the fourth quarter for the first time in seven years and shares in Marks & Spencer Group Plc, the country's largest clothing retailer, yesterday fell the most in at least 19 years after an unexpected decline in holiday sales.

Read more:

Australian Dollar Rises to Near 4-Week High; N.Z. Dollar Gains

Jan. 10 (Bloomberg) -- The Australian dollar traded near a four-week high and New Zealand's currency rose for a third day on speculation rising prices in the two economies will prevent the central banks from cutting interest rates.

The two Southern Hemisphere currencies have gained almost 1 percent this year on bets their rate advantage over the U.S. will widen as the Federal Reserve cuts borrowing costs. The currencies may rise ahead of consumer price index reports which are likely to show faster inflation, said Joshua Williamson, senior strategist at TD Securities.

``There are plenty of factors to support the Aussie and kiwi,'' Williams said in Sydney, referring to the currencies by their nicknames. ``The odds are rising for an Australian rate rise.''

The Australian dollar was at 88.28 U.S. cents at 4:54 p.m. in Sydney from 88.42 cents yesterday when it reached 88.58 cents, the strongest since Dec. 13. The currency rose to 96.81 yen from 96.70 late in Asia yesterday and reached 97.39 yen, the highest since Jan. 3.

The New Zealand dollar gained to 77.39 U.S. cents from 77.15 cents late in Asia yesterday. The currency advanced to 84.86 yen and touched 85.24 yen, the highest since Jan. 4.

Australia's dollar may gain to 88.60 cents and New Zealand's may reach 78 cents in the near term, Williamson said.

Read more:

Yen Rises as Drop in Stocks Spurs Investors to Cut Carry Trades

Jan. 10 (Bloomberg) -- The yen rose against 15 of the 16 most-active currencies as a decline in Asian stocks spurred investors to cut overseas holdings of higher-yielding assets funded by loans in Japan.

The Japanese currency gained the most versus the British pound and Australian dollar as investors cut so-called carry trades on concern the global economy will cool. The pound also fell against the euro before the Bank of England meets on interest rates today, with a Credit Suisse index showing 61 percent odds of a cut in the benchmark from 5.5 percent.

``With stocks falling sharply, investors' tolerance of risk has been damaged,'' said Tetsuhisa Hayashi, chief currency trader in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's largest publicly traded lender by assets. ``More than a few investors are selling overseas assets by paring carry trades.''

The yen climbed to 109.81 against the U.S. currency as of 8:13 a.m. in London from 110.04 yesterday in New York. It traded at 161.03 per euro from 161.31. The MSCI Asia Pacific Index of regional shares fell 1.2 percent, snapping two days of gains, and the Nikkei 225 Stock Average dropped 1.5 percent.

Japan's currency may rise to 90 a dollar by March 31, Hayashi forecast.

The euro traded at 74.97 pence after rising to a record high of 75.10 pence, and bought $1.4663 from $1.4659. European Central Bank policy makers also meet today and are forecast to keep borrowing costs at 4 percent. The Bank of England will announce its decision at noon in London and the ECB at 1:45 p.m. in Frankfurt.

read more: