Forex Reader

– Pushpa Sathish, Staff Writer

Peace and a new currency are coming hand-in-hand to Sudan.  The African nation, hitherto torn by strife between the predominantly Muslim north and Christian south factions, will adopt the Sudanese pound while phasing out the existent dinar. The introduction of the new currency is part of the peace agreement signed two years ago between the north and the south. 

Expected to set the national exchequer back by $150 million, the change will provide an index to measure the growth of the nation’s economy, said the Vice-President of South Sudan. The “Sudani” as the currency will be known, will equal the value of 100 dinars, according to reports from Associated Press.

– By Pushpa Sathish, Staff Writer

To protect itself from fluctuations in foreign exchange rates that may affect it adversely as a result of its equity investment in Bank Islam Malaysia Bhd, Dubai Financial LLC (DF) has agreed to an Islamic cross currency hedge transaction with Citibank Malaysia. According to the terms of the transaction, DF and Citibank will swap currency profit rates for five years, and trade in various commodities in different currencies. The Star reports:

The $230 million currency profit rate swap was the first cross border syariah compliant forex hedge transaction in the world based on the Murabahah principle, Citigroup Malaysia said in a statement.

– By Pushpa Sathish, Staff Writer

Venezuela’s controversial President is making news again. This time, it’s to announce that the country’s economy is strong and healthy, and that there is no need to devalue the national currency, the Bolivar. If you’ve been following the status of the Venezuelan economy, you’d remember that Hugo Chavez had said in April that the bolivar would be revamped into the neuvo bolivar, and would have three zeros knocked off. The new currency was supposed to be introduced into circulation on jan 1, 2008.

In related news, in a move that will benefit small and medium businesses, the President also scrapped import duties and value-added tax on capital goods and goods that were needed for manufacture but not produced indigenously. Business Week reports:

The exchange rate is fixed at 2,150 bolivars per dollar, and Chavez said Wednesday that would remain "identical" throughout 2007.

The peso’s fall against the dollar spells bad news for the Philippine Long Distance Telephone Co. (PLDT). The company is expecting losses in its foreign exchange holdings because of the movements in the US dollar and the Philippine peso exchange rates. Business Inq7 reports:

However, PLDT said the amount of foreign exchange gains or losses is also largely influenced by debt levels, which have been declining. The shrinking level of its debt should limit the impact of foreign exchange movements on its bottom line.

The Bank of America Corporation has predicted that the Mexican peso will fall 4.5 percent against the US dollar. The fall is attributed to false security that investors have been lulled into in their belief in the new regime in Mexico. The country has a new president in Felipe Calderon, whose economic policies investors expect will reduce inflation and foreign debt, like those of his predecessor Vicente Fox. While the peso rose 4 percent amidst these high expectations, strategists at the Bank of America foresee a drop in the currency as the new head of the country will have less control over the peso. They claim that the peso will be influenced by oil prices and market fluctuations rather than political policies. Bloomberg reports:

The peso will also weaken against the dollar as the interest-rate differential between the U.S. and Mexico continues to narrow, Bank of America said. The Federal Reserve has raised its overnight lending rate between banks four times this year to 5.25 percent, while Banco de Mexico has lowered rates four times to 7 percent.

Mozambique’s new currency has been introduced into circulation. The country’s national currency, the meticai, has been revamped into having three less zeroes than before. While trading and transactions in both old and new currencies will be allowed between July 1 and December 31, Mozambique’s citizens have been given the next year to convert their old currency notes at any bank. From 2008 however, they will be able to exchange the old currency for new metcais only at the Bank of Mozambique. The country had devalued the metcai in the late 1980s and the early 1990s, which meant that all dealings were in terms of millions and billions of metcais. All Africa reports:

Now that inflation is more or less under control, the government believed the time had come to make the currency more manageable by removing the last three zeros. The Finance Ministry and the central bank argued for the reform on grounds of efficiency and convenience - book-keeping is more difficult, and more prone to error, when sums have to be written in billions.

Continuing his spree of changing national symbols like the flag over the past three years, Venezuelan president Hugo Chavez has decided to introduce a new national currency, the “nuevo bolivar”. He has issued orders to the country’s central bank and its legislature to prepare for this major monetary reform, which is intended to counter rising inflation in Venezuela. The nuevo Bolivar will remove three zeroes from the value of the Bolivar, which trades at the fixed official rate of 2,150 to the dollar. The new currency is set to be introduced into circulation on January 1, 2008. FT reports: 

Economists say the introduction of a new currency will be pointless if it is not accompanied by an overhaul of fiscal policy. Awash with dollars from oil exports, the Chávez government has dramatically increased expenditure in parallel to the official budget, one of the main causes of excess liquidity and persistent inflation.

Rising interest rates in the U.S and other parts of the world did not affect growth or bring down the demand for high-risk assets in emerging markets in Brazil. As a result, the Brazilian real closed at its strongest value in a month – it rose 0.2 percent to 2.2310 per dollar on Wednesday from 2.2355 on Tuesday. After dropping 2.7 percent over the past three months, this was a welcome change. The most significant contributor to this development was the country’s current account that exceeded expectations – the surplus rose to $475 million in May from $241 million in April as a result of increased direct investment from abroad, from $790 million in April to $1.57 billion in May. Bloomberg reports:

“Both the current account number as well as the foreign direct investment were above the market consensus,” said Alexandre Ferreira, vice-president for currency trading at WestLB AG in Sao Paulo. “Strong internal numbers and a stabilization of the external environment are helping Brazil differentiate itself from other emerging markets, such as Turkey,” he said.

Member of the former Soviet Union and present Commonwealth of Independent States Kazakhstan has registered an 8.6 percent increase in its gold and foreign exchange reserves, according to a press release issued by the country’s National Bank. As on May 31, the Eurasian country’s forex reserves, which include gross reserves at the National Bank and assets of the National Fund, stood at USD 22.752 billion, with National Fund assets contributing USD 8.717 billion to the total. Interfax reports:

Domestic currency market purchases and funds entering the government’s accounts increased the National Bank’s net forex reserves by USD 1.605 billion to USD 14.031 billion in May. Assets in gold rose USD 30.1 million due to a 2.5% growth in gold prices on world markets. The National Bank’s net gold and foreign exchange reserves grew 13.2%, or by USD 1.635 billion in May, to USD 12.774 billion.