Down Under Currencies Slide in FX Trading

January 30, 2009

Aussie, kiwi lower in forex trading
Both the Aussie and the kiwi are lower in forex trading on the currency market today. Like the Canadian dollar, the down under currencies are commodity currencies in FX trading. This means that global recession is taking rather a large toll on the economies connected to those currencies.

Another problem is that the down under currencies are seeing rather significant cuts to their yields. Before, the kiwi and the Aussie were seen in forex trading as high yielders. However, interest rate cuts in Australia and New Zealand have damaged the yield — giving no big advantage over lower yielding currencies.

On top of this, risk aversion has meant an almost complete cessation of the Japanese yen carry trade. And the down under currencies were major beneficiaries of the yield difference in this move. Now there is very little to temp forex traders to the kiwi and the Aussie.

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Canada in Recession: Loonie Drops in Forex Trading

January 30, 2009

Canadian dollar in currency trading on the FX market
It’s official: Canada is now in recession. On the news — not surprisingly — the loonie has fallen in forex trading against the U.S. dollar. As the global economy continues to erode demand for Canadian exports, the dollar will continue to drop in currency trading on the FX market.

Indeed, the global economy is playing a large role in sending forex traders to the U.S. dollar. They are abandoning currencies seen as "riskier" for those that are considered safe havens. The greenback is one of the safe haven currencies of choice right now as recession marches forward around the world.

Economic news continues to be negative coming out of Canada, and that will only continue to cause problems for the loonie in forex trading.

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Is Sterling Showing Signs of Recovery in Currency Trading?

January 30, 2009

U.K. pound looks ready to start gaining against the euro in forex trading
Sterling has been down for so long that it might be hard to think that maybe — just maybe — it is possible that it starts making a recovery in currency trading. At least against the euro in forex trading, the U.K. pound appears to be ready to do a little gaining.

With the euro zone economy struggling a great deal, and the outlook for the euro in forex trading rather bleak, it is no surprise that sterling is expected to move away from parity and perhaps break out.

Additionally, the British government has been announcing bailouts and stimulus measures in the hope that things will get moving with some prodding. These actions remain more than what the euro zone policy makers have done, creating an expectation that at some point the British economy will begin moving out of recession.

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02/01/2009 – The pendulum of sentiment keeps swinging

January 30, 2009

* The pendulum of sentiment keeps swinging
* Concerns mounting on the fate of the EUR
* Outlook for RBA, BOE and ECB rate meetings next week
* Key data and events to watch next week

The main driver in FX remains overall investor sentiment, with stock market movements as the primary barometer of risk appetites. When stocks are up and sentiment is positive, the USD, the JPY and gold are typically sold, and when shares start falling, the USD, JPY and gold are all bought. The rally in shares that started this past week was echoed in EUR/USD strength and JPY-cross strength, but sentiment quickly turned on the surfeit of bad news, whether it was weak earnings, dismal data, or dire prognostications. The positive wave of sentiment was largely based on prospects for the US fiscal stimulus plan and the potential creation of a ‘bad bank’ to absorb toxic bank assets, but the optimism quickly faded as hopes for a quick fix to the US and global downturns proved unsustainable. However, hope springs eternal and new US Treasury Secretary Geithner is working on a comprehensive plan to stabilize the US financial sector, though concrete details have yet to emerge. News reports late on Friday suggested that the ‘bad bank’ plan has been scrapped altogether, leaving the outlook even more uncertain and downbeat than before.  Full text »

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Forex Training: Risk Appetite

January 30, 2009

Risk appetite and aversion influence currencies on the FX market
One of the most telling indicators of how currencies are likely to do on the FX market is that of risk appetite (and its opposite, risk aversion).

Risk appetite measures how confident traders feel in taking larger risks. When the economy is good, and when there is global growth, risk appetite is high. Traders feel comfortable with more volatile currencies (high yielders and emerging market currencies) and are willing to take risks in order to make bigger profits.

When risk appetite is low, risk aversion is said to be high. Traders do not wish to take risks. Instead, they put their money into safe haven currencies that are more stable. The returns aren’t as high, but during times of economic uncertainty and turmoil, the risk averse try to preserve capital.

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Germany Doesn’t Like the Idea of a "Bad Bank"

January 30, 2009

Europe’s largest economy not fond of creating a bank for toxic assets
One of the "solutions" to the straights that the U.S. economy has found itself in has been floated: Create a "bad bank" for toxic assets. The reasoning behind this idea is that it is possible to get these bad investments and assets off balance sheets, giving banks more breathing room.

Germany, however, doesn’t agree with a single government run bad bank. Instead, Berlin is suggesting that banks create their own bad banks, reports the Financial Times:

Under the plan, the banks would set up individual “bad banks” to hold their illiquid assets. These would be issued with state guarantees by the bank rescue fund set up in October by the government.

Once rid of their toxic assets, the banks could apply to the fund for fresh capital.

It’s an interesting twist on the bad bank concept. Will the U.S. consider this plan next?

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London Session – January 30, 2009 7:45 AM

January 30, 2009

Poor data across the pond coupled with another potential credit downgrade on the horizon pushed risk trades lower into the latter part of the London session. The eurozone CPI estimate was wound down to just 1.1% for January, much lower than the consensus 1.4% and down from 1.6% the prior month. So it continues to get increasingly clear that the ECB’s hawkish rhetoric on inflation is still overdone. Unemployment in the eurozone came in higher than anticipated at 8.0% in December and the previous month was revised up to 7.9% from 7.8% to boot. The big news, however, was Moody’s reporting that it has revised Ireland’s debt rating outlook to negative – setting it up for a potential downgrade. Indeed, insurance against default in Ireland sovereign debt is now more expensive than it is for Chile. Full text »

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Asia Session – January 30, 2009 1:49 AM

January 30, 2009

To end the week in Asia, traders scurried to the security of the so-called “safe haven” currencies of the US and Japan, amidst lower equities spread from the US to Asian markets. With plenty of gloomy data to go around, including horrid Japanese Industrial Production and employment data in Asia and poor durable goods, and employment in the US traders looked at the global recession as worsening. USD/JPY dropped like a stone during the session, falling from initial highs of 90.14 to lows of 89.19 as the hours passed. The EUR/USD made similar moves, opening near 1.2946 highs and slowly grinding to lows of 1.2881 before steadying out ay 1.2900 by London’s open. All in all, the Euro was victimized today by both the Dollar and Yen while ECB members continued to talk in circles about the fate of Europe’s single currency. EUR/JPY opened near its highs of 116.65 and fell to just a pip under 115.00 over the day. Later we have the Euro Zone CPI and employment data to watch at 10:00GMT. Full text »

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New York Session – January 29, 2009 4:43 PM

January 29, 2009

Risk aversion was once again the order of the day in NY trading and the buck headed higher as a result. Early news reports that the Obama bad bank idea could cost upwards of trillion and later statements by a US Senator that it could top trillion saw both Treasuries and stocks under pressure all session. The S&P sank more than -3% and was sitting just above the critical 840 support zone. Bonds meanwhile were markedly lower with the 10-year yield jumping a massive20 basis points to 2.86% while the 2-year added 5 bps into the 0.95% area. Gold, the ultimate risk aversion asset, popped to 8/oz to boot. Full text »

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Reserve Bank of New Zealand Cuts Rates

January 29, 2009

New Zealand dollar continues to struggle in currency trading
The New Zealand dollar continues to struggle in currency trading on the FX market after today’s rate cut. The Reserve Bank of New Zealand cut rates by 1.5%, sending the rate to 3.5%. This was unexpected, as the RBNZ was expected to cut rates to 4%. The 3.5% is a record low rate.

The kiwi is falling in forex trading as commodity currencies are hard-hit by the global recession. The hope is that the lower rate will sitmulate economic growth, ultimately helping the New Zealand dollar in currency trading.

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