Forex Reader

Here’s a good news for our readers. We are going to host the first edition of the "Carnival of Forex" on March 6, 2007. We require interesting blog posts on forex, currencies, stock market, bullion and other related issues. Feel free to submit your entries through the Blog Carnival Page.

– Pushpa Sathish, Staff Writer

This is one country that does not want to limit its foreign inflows; it would rather hold its currency at a steady rate against the dollar to keep its export earnings flowing. Malaysia is selling the ringgit to prevent it from increasing the 3.5 per dollar rate for at least the next three months. The Asian country is learning from the mistakes of Thailand which faced an exodus of foreign investors after it imposed capital controls, according to Adam Le Mesurier, economist at Goldman Sachs, Singapore.

The ringgit, which rose 0.9 percent this year following increased foreign investment and a subsequent surge in the economy, has been steadied at 3.5 for the past fortnight with the Bank Negara Malaysia, the country’s central bank, buying a large sum of dollars each day. The gain in the local currency has not yet slowed down exports, which rose to 17.5 percent in November over the period of a year.

Emmanuel Ng, a currency strategist at Oversea-China Banking, feels that the central bank will allow the ringgit to appreciate if the growth prospects look good, which should leave the currency at 3.45 by the end of 2007.

– Pushpa Sathish, Staff Writer

Is the dollar losing its hold as the leading reserve currency in the world? The recent volatility of the greenback has forced more than one nation to consider minimizing their risks in holding a large amount of dollars. China, the largest forex holder in the world, has notable been urged to diversify into alternatives.

There’s no immediate fear of the euro, the second-largest reserve currency catching up to the dollar though, let alone overtaking it. Dollar-denominated assets account for around 70 percent of forex reserves, the euro takes 25 percent, the pound comes in third having just overtaken the yen which has been pushed to fourth place with less than 5 percent, and the top five is rounded off by the Swiss franc with a share of less than 1 percent. 

– Pushpa Sathish, Staff Writer

The yen continues to fall against the dollar and the euro, fueled by a low interest rate and the Bank of Japan’s (BOJ) Governor’s statement that he did not have a planned schedule to hike interest rates. The drop has driven hedge fund managers and other currency speculators to place a large number of bets that the yen will decline to a record low against the dollar, says a report from the U.S. Commodity Futures Trading Commission. Predictions from Credit Suisse, Barclays Capital Inc. and Bank of Tokyo-Mitsubishi UFJ Ltd. see the yen falling to 125 per dollar over the next few months, the lowest exchange rate since 2002. Bloomberg reports:

The BOJ benchmark is the lowest among industrialized nations, encouraging investors to borrow yen and buy higher- yielding assets elsewhere, in a practice known as the carry trade.

– Pushpa Sathish, Staff Writer

Rodrigo de Rato, the International Monetary Fund’s managing director, warns that “the high levels of credit and high levels of investment could cause a risk in China.” The country should take another look at the regulatory controls it has imposed to curb excessive foreign investment. De Rato suggested that the authorities let the value of the yuan be driven by the market to bring about a more flexible exchange rate.

China holds the world’s largest foreign exchange reserves and is struggling to contain foreign inflows to prevent adding to its already huge trade surplus. An increase in bank loans and investment leaves the market open to inflation and a debt crisis if projects fail. The Chinese economy is already growing rapidly – 10.7 percent in 2006, thanks to its large volume of exports and investments. And it naturally follows that inflation is up – consumer prices went up by 2.8 percent in December, an increase over the 1.9 percent rise in November.

Prime Minister Wen Jiabao knows what has to be done though – he stressed that sharp fluctuations in the currency should be prevented. The yuan has risen nearly 6 percent over the past 18 months.