Before I start can I first apologise. As I understand it, some of you did not receive all of the recent Daily Currency Insights. Technical issues which are way beyond my understanding appear to have got in the way but another 50p in the slot appears to have solved the problem. This report is a tad longer than usual to catch up.
Obviously if you don’t get this report, please let me know.......sorry that doesn't work does it but I suspect that many of you have been too engrossed in the scintillating ebb and flow of the Ryder Cup golf to be bothered anyway. What a win for Monty’s boys.
As for the markets, well this week is all about interest rates and US unemployment levels. We had two of the interest rate decisions last night and they couldn’t have been more controversial if they tried. The Reserve Bank of Australia surprised the majority of analysts (not Halo Financial, I can add with an annoying level of smugness) when they left their base interest rate on hold at 4.5%. Many had assumed their pattern of interest rate hikes would resume this month and then pause again but they were wrong. The RBA believes the current interest rate is an average of recent years and is appropriate at the moment. The Australian Dollar weakened immediately after the news and the Pound managed to push it above the resistance that has capped it of late. Those importing from or moving to Australia heaved a sigh of relief at the news. There is a chance we will see higher levels in the day ahead so if you are in that camp and are looking to buy some Australian Dollars soon, please check in with your Halo Financial Currency Consultant to determine an attractive level for you. Equally, with a move to higher levels, those selling the Aussie Dollar may want to act sooner rather than later.
Overnight also brought an interest rate decision from the Bank of Japan. Unlike the RBA, they actually cut their base interest rate but at 0.1% it was already miniscule anyway. A bit like the US Federal Reserve, they have moved to a variable rate between 0.0% and 0.1%. It is yet another attempt to weaken the Japanese Yen in order to benefit Japanese exporters but it is such a minor adjustment that it is unlikely to have a marked or sustained impact.
We also get interest rate decisions from the European Central Bank and the Bank of England this week although no change is forecast from either central bank. However, traders will be watching for shifts in each bank’s rhetoric which may expose plans to expand money supply in the month ahead. These are announced on Thursday.
Meanwhile, the big market mover yesterday was a speech by the head of the US Federal Reserve, Ben Bernanke who worried traders and investors with a comment that the US budget deficit was a “real and growing threat” to US economic stability and that current and future governments would have to make some tough decisions to rein in the deficit. Obviously pressure on China to allow its currency to strengthen and the President’s declared aim to double US exports are all part of that process but at $1.4 trillion in the year to September, no one could deny that the current budget deficit should be a worry to US policy makers. The US Dollar didn’t weaken on the comments as you might imagine it should but profit taking and uncertainty appear to have been behind an afternoon of US Dollar strength. The move was well within recent ranges though so this could not yet be considered a directional shift in the US Dollar’s fortunes.
The Euro had a bad day at the office in spite of an improvement in one consumer confidence index and China stating that it would increase the level of Euros within its reserves. What weighed on the Euro was news that the European Central Bank had sharply increased its purchase of bonds and Ireland downgraded its growth forecasts for the next couple of years. With the positive approach to the US Dollar and profit taking on recent Euro strength, a dip in the Euro’s value was inevitable and that’s just what we got. Only time will tell if today’s rash of European Purchasing Managers Indices will alter that pattern but it does look like we will have a volatile morning session.
Aside from the government’s declared intention to cut child benefit for higher tax rate payers, the Pound was in quite bullish mood for most of the day. Weakness in the Euro yesterday and in the Australian Dollar overnight and strength in the US Dollar throughout that period were enough to add support to the Pound even as little data came from the UK side of things. Today is also a little light on the UK side of the equation with only the Purchasing Managers Index and the balance of reserve holdings news due to assail us.
Elsewhere, the Canadian Dollar had been doing rather well lately prompted by a sequence of positive Canadian economic reports but trader and analysts are just now starting to realise that if the US economy is looking suspect and America is the buyer of 70% of Canada’s exports, then that is bad for Canada and the Canadian Dollar. All the good news must now be priced into the value of the CAD so we ought to expect a period of Canadian Dollar weakness.
And in New Zealand, fewer companies are optimistic about the future. In a quarterly survey which asks about expectations over the next 6 months, just 6% of companies polled said they were optimistic compared to 18% last quarter. This plus the fact that NZ interest rates are expected to be on hold for some considerable time, the NZ Dollar is likely to come under pressure in the weeks and months ahead. That’s great news for those importing from or migrating to New Zealand.
And finally, as if corked wine wasn’t bad enough, a woman in Leicestershire poured herself a glass of Moscatel de Valencia and found it was ‘frogged’. To be more precise, she claims a small frog fell out into the glass. The wine is from Spain before you think of the obvious joke but the upset stomach the lady suffered was definitely home grown. The supermarket which sold her the bottle is investigating.
cat (Catharine Higginson) #1