Daily Currency update for SF members courtesy of Halo Financial

(Catharine Higginson) #1

Well I wondered if yesterday would be a roller coaster after the German decision to ban short selling contracts on certain bonds and assets. It was. In fact it was one of the busiest days we have seen all year and the volatility was everything we hoped it might be. Just to give you some measure of the pace and magnitude of change, the Sterling - New Zealand Dollar exchange rate range on the day was 7.5 cents, for the Australian Dollar it was 5.5 cents; the Sterling - US Dollar range was 6 cents and the Euro - US Dollar rate moved by 3 cents.

The trigger for all this furore was the news that Angela Merkel, Germany’s Chancellor, had gone it alone in banning traders from taking the negative view on government bonds and then a stream of rumours which were heard throughout the day that Greece may withdraw from the Eurozone. No one could quite work out what Greece could hope to gain from such a move and the Greek authorities finally had to scotch the rumours with a statement to the markets. In the meantime, the volatile trading conditions had made a lot of people a lot of money and many of you managed to get better exchange rates on the Australasian Dollars in particular than we have seen for 3 month.

You may wonder why an ostensibly European story might weaken the Australasian currencies; it is a fair question and the answer is that the Aussie and Kiwi Dollars have been bought heavily by investors seeking higher interest rate yields over the last few years. However, in buying those currencies, overseas investors take on the risk that the exchange rate movement might wipe out their interest rate gains. Consequently, when traders and investors are nervous, they tend to unwind these contracts and shunt their funds into more secure investments like government bonds. So the Eurozone debacle is causing flight from the Aussie and Kiwi and a headlong dive into the US Treasury markets and back into the currencies from whence that money came originally, like the Japanese Yen, US Dollar and to a lesser degree, Sterling.

EU leaders are meeting today and tomorrow and David Cameron will meet with his EU counterparts in France and Germany on those two days to discuss all manner of things. I am sure Britain’s reticence when it comes to funding a Eurozone problem will be discussed. I will not comment on what I think he should do for fear of being branded xenophobic. Angela Merkel does not appear to have persuaded her French colleagues to join in with her ban on short selling and I would be very surprised if anyone else would sign up for the plan. So it may prove to be a short lived and genrally unsuccessful foray into uncharted territory for Chancellor Merkel.

In other news, the Bank of England voted unanimously to leave the base rate on hold and maintain the same level of Quantitative Easing when they met earlier this month. The same is true of the US Federal Reserve when it comes to the base interest rate but the Open Market Committee was divided over when to start reducing their market stimulus. Both central banks further tough times ahead and neither is suggesting the US or UK or the global economy for that matter is out of the woods.

We heard overnight that Australian inflation dropped back from last month’s 4.1% to roughly the same as the UK level of 3.6% and average earnings slipped a tad as well. Today started with a small German producer prices, which is not so surprising considering that oil rose consistently through the first part of the year. Today will also bring UK retail sales and we will get further insight into the plans being formulated by our new coalition government. Whether today will be quite as lively as yesterday is open to debate but all the elements are still there and once again, anything could happen in this tinderbox environment.

Finally, if a few accidents happen on a road in the UK, the automatic response of the local authority is to set up a speed camera and pay themselves a bonus on the fines that roll in. In Austria it appears things are a little different. The Austrian motorway authority, ASFINAG,has had excellent results from a process of hiring Druids to drain the negative energy from accident blackspots. A search for negative radiation using dowsing rods identifies the bad energy and the Druids drain it away; cutting deaths at one blackspot from an average of 6 a year to 0. So you can see where I am heading with this can’t you. Britain is awash with Druids who appear to have nothing to do between solstices, so a plan is pretty obvious. Keep an eye out for slightly odd looking people in hoods hanging around the scenes of accidents near you soon. So no change there then really.

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