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     holycow
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| | Tuesday, November 16, 2004 - 03:12 pm: |  
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November 16, 2004
Dollar loses more ground as US talk lacks firm action
By Graham Searjeant, Financial Editor
DOLLARS traded at their lowest rate against the yen for seven months in America last night, as traders shrugged off reassurances from John Snow, the US Treasury Secretary, that the Bush Administration wanted a strong currency.
The yen rose near to its highest level since the Bank of Japan stopped intervening in currency markets.
Mr Snow claimed in Dublin at the start of a European tour that the US government still wanted the dollar to be strong against other currencies. But he carefully added a rider that the markets must decide. In Europe, the euro had fallen back slightly from the $1.30 level it touched last week.
Mr Snow’s remarks came as finance ministers of the eurozone countries disagreed politely over the sharp rise in the single currency at a regular meeting in Brussels. Most member agree with the Jean-Claude Trichet, president of the European Central Bank, who said the euro’s rise against the dollar had been “brutal”. However, Alfred Tacke, Germany’s deputy finance minister, said that the dollar’s rise against the euro appeared to have halted and that the currency’s level was no cause for concern.
Joaquin Almunia, the EU’s monetary commissioner, welcomed Mr Snow’s statement, but said that America needed to back its words on the dollar with actions. Washington has so far shown no interest in emergency domestic action to curb its twin deficits or in a new bout of concerted intervention on the foreign exchanges. Analysts said they would be listening carefully to what Mr Snow said at the impending meeting of the Group of 20 finance ministers in Berlin on Friday.
Chinese officials made it clear over the weekend that the trading partner with the biggest trade surplus with America was in no hurry to let its currency rise against the US dollar. The process could take two years, it was hinted. But Mr Snow welcomed what he saw as moves to adjust the yuan, easing the strain on other dollar rates.
The US Treasury boss put the onus yesterday on the eurozone to improve its own economic performance.
He said that the eurozone had been operating below its potential and that this was holding back the world economy as well as people within the single currency...
8209-1360551%2C00.html,http://business.timesonline.co.uk/article/0,,8209-1360551 ,00.html
HC
"... if you've got a chart, I have an opinion!"
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holycow
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| | Thursday, December 02, 2004 - 06:10 pm: |
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Asian Currencies: Rotation Revived
Melanie Baker and Stephen L Jen (London)
The case for the USD to decline against Asian currencies makes more sense to us than the case for a further move higher in the USD against the EUR, AUD, or GBP. Although we abandoned our rotation call in the middle of this year, several factors have since shifted and make the case for rotation worth revisiting.
Rotation returns as a focus. The issue of rotation has made it back into the forefront of investor concerns. Dollar selling continues on our data, but there remains a question for dollar bears of what to sell the dollar against: 1) Since USD-negative concerns continue to centre on US imbalances, it is widely recognized that a wider set of currencies probably needs to strengthen against the dollar if there is to be a significant effect on the US current account deficit. A larger proportion of the deficit is run against Asia than against Europe; 2) The G10 currencies have already made significant moves over the USD correction and, at least on our valuation metrics, most of the G10 currencies look very stretched. We continue to believe that the rebalancing issue is rather overdone in currency markets and that feasible amounts of currency adjustment are unlikely to rebalance the US deficit. Nevertheless, there is merit in calls for a ‘rotation’ of the dollar correction. A further downshift in USD/Asia is very possible in coming quarters.
View on China led us to call a halt to rotation. Earlier this year, we had felt that the final phase of dollar correction would take place against a broader range of currencies after a stalling out in the dollar’s move against the majors. The correction through to early this year had been very lopsided, occurring largely against G10 currencies (and against the euro more than the yen). Some degree of ‘burden-shifting’ towards Asia looked overdue. By June, however, we suggested that, given the likelihood of a China hard landing, the USD was unlikely to correct any further against Asia. Given already stretched G10 currencies, this, in our view, meant that the USD index was unlikely to correct further.
USD descent still uneven, but some signs of rotation. The USD down-trade we have seen since the beginning of 2002 continues to look lopsided, but with some (admittedly limited) signs of leveling out. Over the entire dollar correction period (2002 onwards), the Federal Reserve’s major currencies index has fallen just under 30%, while the broad index (which includes Asia ex-Japan and Latin American currencies) has fallen only 15%. However, since the end of the summer, the contrast has not been quite so extreme. The major currencies index has fallen some 7% against 5% on the broad dollar index. It is also worth looking at the bilaterals. Analysing the components of the broad dollar index, of the top ten currency performers versus the dollar since January 2002, only three (the bottom three) were non-G10. In the move since the summer, four were non-G10 and have shifted up the ranks in terms of ‘burden sharing.’
China, valuation, and intervention key issues for rotation.
• China has not been slowing as fast as we had expected. A Chinese hard landing had been the main factor behind our abandonment of the rotation trade earlier this year. However, signs of slowdown are not coming through as quickly or as strongly as we had expected.
• RMB flexibility as a trigger for a USD/Asia down-trade. We now think that Beijing could introduce a more flexible RMB regime at any time between now and end-2005 (see ‘Inching Toward a Crawling Band,’ Stephen L Jen, 11 November 2004). With speculative pressures strong, the initial reaction of the market to any RMB move would likely be to push USD/RMB lower, and with it the rest of Asia.
• Valuations justify a down-move in USD/Asia. While valuations look very stretched against many of the ‘G10’ currencies, this is not the case for USD/Asia. EUR, AUD, and GBP are around 20% overvalued against the USD on our models. The (G7) USD index is modestly undervalued. Against some of the Asian currencies, however, there may still be room for manoeuvre. All of the Asia ex-Japan currencies we have fair value estimates for except the KRW (i.e., PHP, MYR, THB, SGD, TWD) look somewhat overvalued. Against the JPY, the USD is now very close to our estimate of median fair value. However, given the tendency of currencies to overshoot (see EUR/USD), it is conceivable that the JPY could be pulled up further as part of a renewed burst of USD weakness.
• Liquidity and intervention may remain a constraint. So far, the market has been relatively content to play out dollar themes against the most liquid currencies, but investors are still buying euros by default, in our view. Eurozone cyclical data have disappointed, the case for imminent ECB rate hikes has receded, and investors remain sceptical on a positive longer-run story for Euroland. Our flow data already suggest that investors are playing the USD weakness theme through the wider G10 rather than just EUR/USD. However, the case for more widespread involvement in a USD/Asia downtrend may face resistance. With Asian authorities quicker to intervene and with experiences of capital controls fresher in investors’ memory for Asia than the G10, some investors may be less willing to pile into the trade.
Bottom line. The call for rotation in any dollar downshift towards the Asian currencies is a case worth revisiting. A change in the RMB regime could be a trigger for another leg of USD/Asia declines, and there is a valuation case for such a move in several Asian currency pairs.
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HC
"... if you've got a chart, I have an opinion!"
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holycow
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Post Number: 471
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| | Saturday, December 04, 2004 - 11:18 am: |
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FOREX-Dollar dives to new record lows
NEW YORK, Dec 3 (Reuters) - The dollar slid to a new record low against the euro on Friday amid disappointing U.S. jobs data and a perception that the United States was in no hurry to stem the dollar's fall.
The dollar crumbled to $1.3458 per euro , according to Reuters data, a decline of nearly 1.4 percent and a new record low. It also fell more than 1 percent against other currencies.
It was the dollar's biggest fall against the euro since early August and the eighth time in the last nine sessions that the dollar has made a new low against the euro...
**** it's not so much of the decline in value that causes all the misery, it's the rate of its decline that creates so much uncertainties in biz - in transactions/planning/budgeting, etc... it's a nightmare to budget and plan for next year when you know there is a high chance that your budget will be blown to pieces. Sure there is hedging, but how much can a biz organisation hedge/risk in an uncertain global economy?
HC
"... if you've got a chart, I have an opinion!"
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holycow
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| | Wednesday, December 08, 2004 - 02:47 pm: |
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Dollar Dullards
Tuesday December 7, 7:00 pm ET
Ibd
Economics: Europe's top financial officials are screaming for the U.S. to "do something" about its declining dollar. Sorry, but they have it exactly backward.
The euro hit a record high of 1.3467 dollars on Tuesday in London trading, as the dollar's drop continues to send shock waves across Europe. It's all about America's "twin deficits," European officials say -- the U.S.' yawning trade and budget deficits that foreigners must now finance.
Austria's Finance Minister Karl-Heinz Grasser spoke for the whole Continent Tuesday, saying, "I think it is unacceptable that Europe is paying the bill for major imbalances" in the U.S.
Sorry, Mr. Grasser, but you and your colleagues are wrong. The U.S. is in fact footing the bill for Europe. And it has been for years.
It's not that we consume too much -- it's that Europe consumes too little. By imposing high taxes, too many rules and trade barriers on its own people -- and by keeping interest rates at growth-killing levels -- the EU keeps its citizens from consuming more.
So the U.S. has propped up Europe's economy by buying its surplus goods. We've done it for so long Europe has forgotten that economic success is measured not by what you make, but what you consume.
That's why Europe is falling further and further behind. If that sounds harsh, just look at the chart.
The U.S. runs trade deficits because it has become the buyer of last resort for Europe -- and for much of the rest of the world. Every dollar's worth of goods we buy is one less dollar they consume.
It's all part of the 18th century mercantilist idea, still very much a part of European thought, that somehow consumption is evil -- that economic power derives solely from running large trade surpluses.
But consumption isn't evil. Nor are deficits. They're just accounting. Or, as Edward Prescott, this year's Nobelist in economics, put it Tuesday: "I don't see any problems with the U.S. deficit ... it's for political reasons that people are yelling and screaming about that."
Once, the nations in the EU arguably had a higher standard of living than the U.S. But over the past decade, the EU's GDP growth has been about a third slower than U.S. growth. Today, the average American spends about $9,700 more each year on consumption than the average European Union citizen. And that gap is widening.
"If the EU were a state in the USA it would belong to the poorest group of states," Timbro, a Swedish think tank, recently noted.
Quite an indictment of Europe's failed economic policy -- and its attempt to use America's "twin deficits" as a bludgeon to get the U.S. to live like good Europeans and consume less.
Sorry, Europe. The U.S. is letting the dollar fall because it's tired of waiting for you to act. Besides, the weaker dollar will encourage us to buy less from you -- isn't that, after all, what you want?
**** in many ways the writer is right is about the EC... but I see the EC has deeper problem in that the whole community has been bogged down by "Consensus Government" for so long that I can't see how change can be introduced.
In my book, consensus=mediocrity, and there is no two way about it.
HC
"... if you've got a chart, I have an opinion!"
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holycow
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| | Wednesday, December 08, 2004 - 02:50 pm: |
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How to profit on a weak dollar
How to profit on a weak dollar
Even the small investor can find a way to gain from ongoing weakness in the dollar.
December 7, 2004: 4:48 PM EST
By Chris Isidore, CNN/Money senior writer
NEW YORK (CNN/Money) - A weak dollar can produce strong returns, even for individual investors.
The euro has jumped about 6 percent against the dollar this year, as the greenback hit a series of record lows versus that young currency. The dollar has also fallen against Japan's yen. That has increased the value of U.S. companies' overseas sales while driving up the cost of imports here.
Two prime factors driving the dollar's decline: the current account deficit, a broad measure of U.S. global trade and investment, and the federal budget deficit. Experts don't expect either to narrow significantly any time soon, so the dollar could very well keep falling.
"You don't have to be a currency analyst to get your story right about the dollar," said Ashraf Laidi, chief currency analyst for MG Financial Group.
Laidi and investment professionals say there are several ways even small investors can take advantage of the dollar's weakness.
But beware: currency markets are volatile and only a small percentage of an individual investment portfolio -- probably less than 10 percent -- should be exposed to currency fluctuations, according to the experts.
Holding foreign currency
The simplest way to gain from a weakening dollar is to exchange dollars for euros, euro-denominated traveler checks or another currency of choice. The investor would then receive whatever gain that currency posts against the dollar. But there would be no other return -- the equivalent of putting your money in a foreign mattress.
For a somewhat better return, Internet bank Everbank offers certificates of deposit and money market accounts in 25 different currencies. The money market accounts can be opened with $2,500, but don't start paying interest until $10,000. The smallest CD is also $10,000.
The interest rate is lower than the rates it offers on traditional U.S. CDs but the accounts allow investors to gain from currency fluctuations. For example, a 6-month CD earns three-quarters of a percentage point annually if it's in euros, or 2.5 percent a year in dollars.
But if the euro gains another 2.1 percent or so on the dollar in coming months, then the return for the euro CD is effectively 5 percent annually, or twice the dollar CD return. But if it gains less than 1 percent or if the dollar gains on the euro, then the dollar CD would have been a better investment.
The advantage for the foreign CD is that it is FDIC insured, although it can lose value due to currency fluctuation.
Frank Trotter president of Everbank National Banking Group, said foreign currency investments by its customers have risen about 100 percent this year to nearly $1 billion.
"I think of it as part of a diversified portfolio only. We don't suggest that people speculate and day trade," he said.
Gold
Because gold is priced in dollars across the globe, it generally rises when the dollar loses value, as buyers using other currencies drive up the price.
For example since mid-May the euro has risen sharply against the dollar while the price of gold gained 20 percent. Gold is also seen as a way to protect against inflation, but experts say it's the dollar, not inflation risk, driving it up to recent 16-year highs.
Investing in gold just got somewhat easier for the individual investor.
Last month the first Exchange Traded Fund for gold started trading on the New York Stock Exchange, making it far easier for individual investors to buy into gold. The streetTRACKS Gold Trust (Research) trades under the symbol GLD. Another gold ETF is planned from Barclays Global Investors for the American Stock Exchange soon.
Overseas mutual funds
There are a number of these funds that can post gains from currency fluctuations.
Independent research firm Lipper said the Franklin-Templeton Hard Currency Fund is the best pure-play of those looking to benefit from a weaker dollar. The fund holds a basket of international currencies, with the euro being the largest. It has seen an 8.8 percent return over the 12 months ended Nov. 30, or a 6.3 percent return including sales charges.
There are many funds that invest in foreign bonds or equities. But investors looking for the best return from a weakening dollar need to be careful that the fund they've picked is not hedged against currency fluctuations. A completely hedged fund would have neither the gains nor losses associated with shifting currencies -- only the gains or losses associated with the underlying security.
Lipper suggests the Munder International Bond fund and the Federated International Bond fund for those who believe the euro will post the biggest gains against the dollar.
Making investments in foreign equity funds is a less sure way to benefit from currency movements, said Martin Vostry, a research analyst at Lipper.
"The volatility of the performance is due to underlying security performance, not currency movement," said Vostry. Overseas companies can also have their own currency hedging strategy in addition to the any hedging moves the portfolio manager uses.
U.S. exporters
One way investors can benefit from the weak dollar is to concentrate on sectors that have strong overseas sales, such as consumer goods producers, drugmakers and heavy equipment manufacturers.
Food companies such as McDonald's (Research) or soft drink makers also see a large percentage of sales overseas. Athletic equipment and apparel maker Nike (Research) now has more than half its revenue coming from sales outside the United States.
"This is how you make money without venturing abroad," said currency analyst Laidi.
The drop in the dollar can mean higher revenues as overseas sales in local currencies translate into more dollars back home or companies cut prices overseas, which also can spur sales.
For example, Procter & Gamble (Research), the nation's No. 1 consumer products maker, saw 13 percent growth in revenue in the third quarter, but said currency exchange rates accounted for a 3 percent gain, or about $122 million.
The inherent problem for these investors is the same one for investors in individual stocks -- a company-specific event can tank the stock, no matter the currency gains.
Drugmaker Merck & Co. (Research), with about 40 percent of is prescription drug revenue from overseas in the third quarter, saw a bump from changes in exchange rates. But the stock tumbled after it withdrew its key pain drug Vioxx from the market due to increased risk of heart attacks and strokes in patients who took it.
There is one mutual fund -- Fidelity's Exporter and Multinational Fund -- which focuses on U.S. companies with export exposure. It has seen about an 11 percent gain in the last seven weeks as the dollar fell. It's top holding is Dow component American International Group (Research), and four other Dow stocks -- Microsoft (Research), Home Depot (Research), Pfizer (Research), and Intel (Research).
Because it relies so heavily on blue chips, Fidelity's fund's performance is only slightly better than the 8 percent gain for the Standard & Poor's 500 index as a whole during the same seven-week period. For the year-to-date, it's up 8 percent, compared to a 7 percent rise in the S&P.
That's not surprising since about a quarter of the S&P 500 gets a significant share of revenue overseas, said Laidi.
HC
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holycow
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| | Tuesday, January 25, 2005 - 08:43 am: |
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I think this news has a serious implication to the value of US$ over time! Think what it will do to the US$ eventually and what it will do to the AUD and its related impact on commodity export and earning! And if you still can remember Australia imported most hi-tech/pharma/drugs from the EU last year?
Here is the full report.
Central banks are shifting reserves away from the US and towards the eurozone in a move that looks set to deepen the Bush administration's difficulties in financing its ballooning current account deficit.
In actions likely to undermine the dollar's value on currency markets, 70 per cent of central bank reserve managers said they had increased their exposure to the euro over the past two years. The majority thought eurozone money and debt markets were as attractive a destination for investment as the US.
HC
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holycow
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| | Tuesday, January 25, 2005 - 08:51 am: |
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... and here is the AUD counter punch (from theAge)...
Aussie soars as confidence in greenback sags
By Sarah Jones
January 25, 2005
Australia's dollar yesterday stormed ahead to close more than US1 ¢ higher, fuelled by rising metals prices as sagging confidence in the US economy ground the US dollar down.
After touching a three-week high of US77.17 ¢, the Aussie finished at US76.94 ¢, compared with US75.88 ¢ on Friday.
Commodity currencies, including the Australian dollar, outperformed the US dollar in offshore trade on Friday night. The greenback lost ground on a weaker than expected consumer confidence number.
HC
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holycow
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| | Monday, February 07, 2005 - 01:05 pm: |
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Nation on track to RMB reform
(China Daily)
Updated: 2005-02-07 02:00
LONDON: China is very much on the track towards an exchange rate reform in response to the demand of the world's richest nations for a more flexible exchange regime, China's central bank chief said on Saturday.
Zhou Xiaochuan
Zhou Xiaochuan, governor of the People's Bank of China, however, cautioned that the reform will be carried out in a measured way to guarantee stability of the renminbi, China's currency.
China sticks to its long-term goal of convertibility of the renminbi under capital account, he said in an exclusive interview.
To that end, China would reform the formulation mechanism of the renminbi's exchange rate and gradually relax control over cross-border capital movement. But the Chinese currency must be kept stable at a rational and balanced level, and potential financial risks must be fended off, he said.
Currently the renminbi is pegged to the US dollar at a stable rate of about 8.27 per dollar.
Zhou said China, for a little more than a year, has made substantive progress in preparing for a foreign exchange reform.
It has made efforts to prepare its commercial banks for a more flexible exchange rate in the future, relaxed foreign exchange controls, and improved its domestic foreign exchange market to familiarize its financial institutions and businesses with the environment of an open foreign exchange market, said Zhou.
As for whether China has a timetable for its exchange rate reform, Zhou said its pace will be in accordance with the need of China's overall economic reform.
The adjustment of the renminbi's exchange rate depends on a stable macro-economic environment, a healthy market scheme and a sound financial system, Zhou said.
China has yet to draw up a suitable reform plan to keep the renminbi stable at a rational and balanced level and has to take into account the impact of such a reform on regional and global economy, he said.
Zhou denied the renminbi is significantly undervalued. China's international trade balance has only a modest surplus, he said.
In 2004, China had an estimated trade surplus of US$20 billion, representing less than 2 per cent of its foreign trade total.
On China's foreign exchange reserves, he said there are several factors behind their relatively rapid increase: China had a moderate current account surplus; the good performance of China's economy attracted both foreign direct investment and reinvestment of foreign-funded companies in China; and the trend of capital outflow from China was reversed.
"These were nothing but normal," he said.
On concerns that the possible appreciation of the Chinese currency might result in a mass inflow of hot money into China, he said the problem should not be exaggerated because China is exercising strict controls on capital accounts.
He said China will work to ease restrictions on cross-border capital movement in a selective, step-by-step manner, creating conditions for renminbi's convertibility under capital account.
He held talks with US Federal Reserve Chairman Alan Greenspan and Treasury Under-secretary John Taylor as well as other G7 finance officials.
In talks with Greenspan and Taylor, Zhou reaffirmed China's policy on reforming its exchange rate mechanism and briefed them on progress made in this endeavour.
The two US officials said they understood the Chinese stand and its cautiousness in the reform, said Zhou.
(China Daily 02/07/2005 page1)
Here is the link.
Comment: I (still) believe China's intention is to follow the Singaporean currency of pegging against a selected group of currencies on trade weighted basis. This has the effect of limiting the fluctuation of Renminbi within a narrow trading band and has a dampening effect on excessive speculation.
Base on the "official" language, I think it is going to take a looooonnnnnngggg time for them to fully implement the changes. Can't see why they want to do that in a hurry if the current "arrangement" is working in their favour. On top of that I read last year the currency speculators were all "in position" waiting for this move - they must be crazy if they oblige the G7's request without first getting rid of the pesky speculators.
HC
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holycow
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| | Saturday, March 05, 2005 - 03:30 pm: |
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China premier says currency to remain 'basically stable' in 2005
Saturday March 5, 2005, 12:40 pm
BEIJING (AFP) - Premier Wen Jiabao said the Chinese currency, the yuan, would remain "basically stable" this year, according to a speech he was to deliver to parliament.
"We will steadily deregulate interest rates to strengthen market forces and reform the mechanism for setting the exchange rate for the (yuan) and keep it basically stable at a proper and balanced level," according to the text...
*** I think the message is quite clear - no repegging of Yuan for as long as there are speculators waiting by the side.
HC
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holycow
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| | Friday, March 11, 2005 - 09:10 am: |
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