International Trading
When a Japanese news agency reported the Bank of Japan was back in selling the yen the dollar shot up by around one whole yen close to ¥84.50. What the market appears unclear about is whether the central bank actually intervened on Friday or not. If it did the episode was botched since it was not communicated to the market at all unlike that of last week. If they did intervene it has been totally ineffective with the yen rising to a one week high.
Japanese yen – The Bank of Japan’s task became more difficult following the FOMC statement on Tuesday that it was open to further rounds of quantitative easing. The ensuing independent dollar weakness essentially smashed the tennis ball right back into Japan’s court. A Kyodo news report overnight stated that the central bank was again selling and the market response was quick to dive out of the way. At this stage it’s impossible to tell whether dealers jumping out of the way of the freight train lifted the dollar in isolation. Certainly there seems to have been neither BOJ nor MOF statement taking responsibility. It’s hard to believe at this point that the Bank acted, failed to comment and that its actions were impotent. The yen has subsequently rose to a one-week high at ¥84.21. The night was a hectic one. At one stage the Bank of Japan also refuted a market rumor that Governor Shirakawa had offered to resign his post.
Euro – An unexpected rise in German business confidence inspired investors to drive the European currency towards a one-week high at $1.3434. The Munich-based IFO said that its September reading of the domestic business climate rose to its highest since June 2007. The survey takes responses from more than 7,000 executives and delivers three separate takes on the health of the economy. Two elements built on last month’s gains for respective indices while the expectations index dipped by a notch. The euro currently stands tall against the weaker dollar at $1.3411 and higher against the yen at ¥113.12.
U.S. Dollar – The dollar is broadly weaker ahead of an expected decline in U.S. durable goods to be announced later in the morning. The “failed intervention” is also weighing on the dollar. While the response to the earlier in the week FOMC statement rattled the dollar the added perception that the Bank of Japan is powerless to prevent its currency from rising merely breeds further contempt for the dollar. One has to imagine that it can’t be long before the genuine article shows up with far more power. So far on Friday the dollar index is down 0.5% and is pinned to the weekly low.
British pound – The pound’s rise against the dollar seems void of fundamental news and appears more driven by the slide in the dollar index. The rising pound today reached $1.5730 but still has some work to do if it is to beat Thursday’s weekly high at $1.5741.
Aussie dollar – The Aussie is cautiously higher against the dollar and also the yen. The local dollar had no fundamental news to drive today’s events and in the face of declining Asian equity prices the Aussie has held up relatively well. The apparent slowdown in the U.S. market and admission by the Fed that it might take further monetary steps to spur growth contrasts with the view from the Reserve Bank of Australia. Earlier in the week the RBA revealed that it may need to consider further steps to tighten policy should economic growth turn out stronger than it is today.
The upshot is that bond yields in the two economies are moving at a different pace with investors demanding more yield on local government bonds. The spread between the two nation’s debt has widened out to more than a two-year high adding to the appeal of the Australian dollar, which today buys 95.41 U.S. cents. The Aussie also buys ¥80.47.
Canadian dollar – The Canadian dollar has felt the weight of a weaker greenback restrain its recent pace of advance. The U.S. economy is Canada’s number one trading partner and as they say, what’s good for the goose is good for the gander. The loonie is today rejecting Thursday’s on-week low and has risen to almost 97.00 U.S. cents in early trading. Some support is emerging from rising commodity prices. Gold continues to make record highs as the U.S. dollar slumps and the fundamental outlook for growth remains tepid. Crude oil, another favorite Canadian export, has also stopped its recent decline in early New York trading.
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