Daily currency update courtesy of Halo financial

(Catharine Higginson) #1

The minutes from the US Federal Reserve FOMC meeting on 21st September were released overnight without controversy. As expected the Fed said additional easing may be necessary if the outlook worsens. The market is expecting an announcement of an additional US$500 - US$750bn QE at the November 3 meeting as slowing growth requires additional stimulus.

The QE so far has done little to improve the economic outlook and some Fed members, the most vocal being Hoenig, have dismissed the need for additional Fed support. Fed Chairman Ben Bernanke however understands the lessons that need to be learned from Japan’s lost decade. Firstly, deflation is enemy number one, and further QE is a good way of pushing inflation upward. Secondly, QE weakens the US dollar, which in turn will assist US manufacturers and exporters. Thirdly, a weaker US dollar reduces the value of the mountain of debt the government has accumulated. For these reasons it is easy to see why US officials would be comfortable with a weaker greenback. Bernanke is due to speak Friday afternoon and his comments will be watched closely by the market for more evidence that the Fed are comfortable with a which a weak dollar.

Although the minutes were well telegraphed the dollar still fell at least 1.5% against all currencies other than the next worse currency in the world - the pound. The pound’s performance over the past month has been quite frankly pathetic. If it wasn’t so disliked it would have rallied by similar amounts to every other currency against the dollar and sterling would sit at $1.70 rather than $1.58. This is down to QE again. Traders expect an announcement of more QE from the Bank of England in the very near future.

September Nationwide consumer confidence came in at the lowest level since March last year at 53 overnight.

Greece held a successful bond auction yesterday which was lauded by analysts as positive and an indication that investors were more confident Greece’s economy was on track to rebound. Cynics will note the Chinese support for Greek debt as a nice way to weaken the Yuan against the Euro. Fair enough a market is after all determined by supply and demand regardless of who is buying and what their reasons are.

The Australian dollar has surged to a 28-year high as the US dollar crumbles. The Aussie parity party (1 AUD=1 USD) is likely to be this weekend with 0.9916 the high so far. The only party tonight in Australasia will be a BBQ of lamb chops rather than prawns after the NZ Sevens rugby team won their 4th consecutive gold medal narrowly beating the Aussies in an incredible match.

An article in the Melbourne Age clearly highlights the stark difference between the economies of Asia/Pacific and the West. Insurance group QBE has forecast Australian house prices to rise 20% in the next 3-years.

An armless pianist who lost both his arms at the age of 10 when he was electrocuted during a game of hide-and-seek has just won “China’s Got Talent”. Liu Wei 23, defeated 7-year-old stand-up comedian Zhang Fengxi at the final in Shanghai.

Halo Financial - Contact Us