The G20 rhetoric is heating up; the brickbats are being thrown thick and fast and the arguments and counter arguments are raging. Each country thinks one of the others is deliberately weakening its currency to gain commercial advantage; every country denies that it is culpable and so the roundabout goes on. Scream if you want to go faster. Today is the last day of the meeting of twenty of the richest nations on earth and the question is whether any of this will result in a meaningful agreement on how currency movement should be managed or whether it should be managed at all. The answer is obviously NO. Will this affect exchange rates? No. Will the markets yawn and move on? Yes.
However, the meeting did throw up a terrific quote from Yu Jianhua, a Director General at China’s Ministry of Commerce. In reference to Chinese claims that America’s money supply expansion will harm other countries he said “Don’t make other people take the medicine for your disease.” Neatly put I think but it does display an abject failure to acknowledge China’s role in pouring medicine down everyone else’s throats for decades while it has artificially maintained the Yuan at ridiculously weak levels.
The factors already affecting exchange rates and the factors that will continue to do so in the medium term are the value of commodity prices and the nervousness of investors over whether central banks will be called upon to provide further support for other central banks and/or high street banks and/or the economies of the world as a whole. The likelihood of the EU having to bail out Ireland’s government is also high on the agenda at the G20 and ministers had a meeting to discuss this specific subject. The potential for Ireland being unable to raise funds through its own bond issuance has driven yields on Euro bonds higher and has weakened the Euro itself. Today’s release of the EU economic growth data could well prove another hurdle for the Euro.
That Euro weakness has flattered the Pound which is at its strongest level against the Euro since 20th September. The Euro also fell to a 6 week low against the US Dollar; respite for those companies needing to buy Euros. Whether this will last is open to debate but we have a little bit of leeway before we get to the very edge of these trading ranges. Sterling though, could be stronger but consumer confidence hit a 19 month low last month and the markets were concerned when Chancellor George Osborne effectively ruled out any plan B, which the International Monetary Fund thinks should be put in place in case the spending cuts stall the fragile economic growth.
In other news, the Australasian currencies lost a little ground yesterday as well. I mentioned New Zealand’s kiwi vine disease problems earlier in the week and the damage that this could do to NZ exports is still weighing on the Kiwi Dollar. That and rising NZ interest rates are causing strength in the NZ Dollar but there seems to be some encouragement from the NZ government for the Reserve Bank of New Zealand to intervene to weaken the Kiwi Dollar. That would be interesting, if slightly fruitless, as per previous similar attempts by the RBNZ.
The Aussie Dollar has the added problem of even high interest rates dragging investor funds into the Aussie Dollar. However, in spite of yesterday’s news that Chinese industrial production and retail sales grew at a still alarming pace we are starting to see the effects of China slowing its economy and that will affect Australian exports. The Aussie Dollar drew back from parity with the U S Dollar yesterday and that gave the Sterling - Aussie Dollar exchange rate a bit of a boost. It’s worth mentioning that the Australian Department of Immigration and Citizenship has announced a new set of parameters for immigration visas and a new points system which will come into effect next year. Many Australia bound migrants are choosing to speed up their plans to make sure they qualify before the changes take place. Your Halo Financial Consultant will have the details if you need them.
And finally, how moronic do lecturers have to be to think that praising criminal damage is a good policy. Lecturers at Goldsmiths, University of London issued a statement saying they “congratulate staff and students on the magnificent anti-cuts demonstration” without making any effort to distance themselves from the violence which caused 41 injuries amongst the police and thousands of Pounds of criminal damage. You want cuts Mr Cameron?, I have just spotted a great place to start wielding the axe.